CentralNic Group plc (LON:CNIC) published Adjusted EBITDA slightly ahead of previously flagged estimates. The Online Marketing division grew 83% organically, up from 65% growth in 2021. Divisional KPIs indicate both volume and pricing growth remain strong. As the company scales, quarterly margins have steadily risen to levels ahead of our full year estimates. At the same time, cash conversion and net cash were strong and we believe are tracking ahead of our forecasts. The company’s strong Q1 performance makes full year earnings expectations appear conservative. By simply annualising Q1 EBITDA and adjusting for the VGL acquisition, we estimate EBITDA could reach $80m, 19% above our forecast of $67m. Even based on our conservative forecasts CentralNic trades at only 7.5x 2022 EBITDA, 10x P/E and 10% FCFF yield.
¨ EBITDA slightly ahead and strong divisional performance: CentralNic published Q1 Adjusted EBITDA slightly ahead of the level flagged in its April trading update ($18.5m v c. $18m) and reported organic revenue growth of 53%. Organic growth was again led by outstanding growth of the Online Marketing division (83%), with the Online Presence division delivering substantial growth (7%). The Online Marketing division increased the number of visitor sessions by 54% and increased revenue per thousand sessions (RPM) by 104% yoy.
¨ Continued operating leverage could drive margin outperformance: EBITDA/ Net revenue margins have been consistently trending up every quarter from 36% in Q1 2021 to 46% in Q1 2022, demonstrating operating leverage benefits that we have conservatively not factored into our 2022 margin estimate (42%).
¨ Potential net debt outperformance: Cash conversion and ending net cash were both strong and appear on track to outperform our estimates, even if we assume only 50% net cash conversion of EBITDA over the remaining three quarters of the year.
¨ VGL and acquisition outlook: The VGL acquisition appears to be performing strongly. CentralNic is establishing an extended track record of value-enhancing acquisitions. The company indicated that it has a strong pipeline of acquisition targets. We are supportive of further earnings accretive acquisitions to further diversify market growth, products and customer base.
¨ Conservative outlook: Despite the company’s strong revenue growth, margin performance and cash conversion relative to forecasts, CentralNic Group indicated that trading is “comfortably in line”. We leave our forecasts, which are in the lower half of the range of consensus estimates, unchanged but we see room for significant earnings upside. If we simply annualise Q1 EBITDA and adjust for the VGL acquisition, we estimate EBITDA could reach $80m, 19% above our forecast of $67m.
¨ Valuation: Even based on our conservative forecasts CentralNic’s strong growth and margins appear undervalued. Shares trades at only 7.5x 2022 EBITDA, 10x P/E and 10% FCFF yield despite delivering 53% organic growth and steady margin expansion.
Summary financials
| Price | 131p |
| Market Cap | £378m |
| Shares in issue | 289m |
| 12m Trading Range | 80p – 154p |
| Free float | 72% |
| Next Event | H1 update – 18 July |
Financial forecasts
| Yr end Dec ($’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 410.5 | 573.4 | 607.3 | 643.4 |
| YoY growth (%) | 71 | 39.7 | 5.9 | 5.9 |
| Gross profit | 118.5 | 159.9 | 168.8 | 178.4 |
| SG&A | -72.2 | -92.9 | -96.5 | -102.3 |
| Adj. EBITDA | 46.3 | 67 | 72.3 | 76.1 |
| YoY growth (%) | 57.3 | 44.9 | 7.9 | 5.2 |
| Adj. EBITDA (%) | 11.3 | 11.7 | 11.9 | 11.8 |
| EPS (c) basic adj. | 11.8 | 16.5 | 17.8 | 19.1 |
| DPS (p) | – | – | 0.8 | 1.8 |
| Net cash (debt) | -75 | -46.3 | -8.1 | 35.8 |
| EV/EBITDA (x) | 9.6 | 7.5 | 6.6 | 5.7 |
| EV/EBIT (x) | 10.4 | 8 | 7 | 6 |
| P/E (x) | 14.2 | 10.1 | 9.4 | 8.8 |
| FCFF yield (%) | 7.8 | 10.2 | 10.6 | 13.5 |
| Div Yield (%) | – | – | 0.6 | 1.4 |
Source: Audited Accounts and Zeus estimates
