CentralNic Group plc (LON:CNIC) announced the acquisition of VGL Verlagsgesellschaft mbH (VGL), Germany’s largest provider of product comparison websites. The acquisition offers opportunities to cross-sell traffic, reduce traffic acquisition costs and leverage VGL’s content creation expertise. We expect the transaction to be 11% accretive before synergies in 2022 on a pro forma basis. CentralNic Group also announced 2021 results slightly ahead of expectations. We provide a review of CNIC’s businesses and summary investment case in this report.
VGL is a high growth company with a dominant market position. Revenue grew 30% CAGR 2018-21 to $55m and EBITDA margin reached 20% in 2021. The company adds customers (e.g. Amazon) and traffic from c. 270m annual visitors, about double estimated visitors to which.co.uk. Despite VGL’s strong growth and competitive position, CentralNic is paying only €60m ($67m) EV (6.2x 2021 EBITDA), funded through a £42m ($56m) equity raise, estimated £3m ($4m) from an Open Offer and €21m bond financing ($24m). We estimate net debt/ 2022 EBITDA rises from 1.5x to 1.3x pro forma, post transaction.
Results ahead: 2021 revenue was $410.5m, in line with the January trading update (c. $410m) and 35% ahead of our original forecast a year ago ($304.1m). Organic growth was 39% in 2021, accelerating from 29% in 9M 2021, 20% in H1 2021 and 9% in 2020. Adjusted EBITDA was $46.3m, slightly ahead of the January trading update (c. $45m) and 12% ahead of our forecast a year ago ($41.4m). Operating cash conversion was 116% (2020: 120%) and net cash was $75m, in line with the trading update (c. $76m).
Outlook upgrade: Based on continued strong trading, CentralNic upgraded 2022 outlook to at or above the top end of recently upgraded expectations. We conservatively make no changes to our top-of-consensus pre-acquisition estimates.
Investment case: CentralNic Group is a market leader in two high growth markets – digital advertising and domain name management. The Online Marketing division grew 65% and the Online Presence division grew 9% in 2021. In addition to delivering strong growth, both divisions have attractive business models. They generate reliable revenues based on subscriptions and serve diversified customer bases. We see the potential for earnings growth to accelerate. The company is currently in an investment stage but investments should plateau in H2 2022, leading to the potential for margin expansion. We believe CentralNic’s strong growth, high revenue visibility, operating leverage and high cash conversion are undervalued by its shares’ low multiples. Shares trade at only 8.9x 2022 EBITDA, 12.5x P/E and 9.5% FCFF yield. Our DCF valuation is 176p, well above the current share price.
