CentralNic Group Analyst Q&A “Long term prospects look very, very good” (LON:CNIC)

CentralNic Group plc (LON:CNIC) is the topic of conversation when Zeus Capital’s Technology Analyst Bob Liao caught up with DirectorsTalk for an exclusive interview.

Q1: CentralNic Group have reported their nine months results ended September and it appears to have grown strongly through the pandemic. Bob, can you just talk us through some of the details?

A1: The growth was very strong over the nine month period, the top line grew by 17% on a proforma basis which is obviously fantastic in this environment. Most of the growth was led by the monetisation division and that division is exposed to a market that’s growing very strongly but also, it’s in a situation where the company is taking market share as well. That division grew 39% year on year driving most of the growth for the company and the other divisions did well as well, the indirect business grew 8%, the direct revenues were basically flat and they’re expecting that business to be turned to growth in the new year.

So, all of it’s looking at me quite positive on the top line.

Q2: Now, profits continue to grow as well, have they followed strong revenue growth?

A2: So, the gross margins on the business have been steady on a segmental basis so no signs of pricing pressure in this market whatsoever. The business that I just talked about, they grew very strongly, that business does have a lower margin than the rest of the business so the overall group margin has declined and as I said, the individual segments are still performing as they have been.

So, the profit growth hasn’t been quite as strong so you have the growth in gross profit being 10%, rather than the 17% growth in the top line, EBITDA grew only about 4% and the reason for that was that the business has decided to reinvest the profits in management and in new systems etc. The expectation is for that investment to drive much stronger growth over the long term.

Overall, we’re seeing some good growth in profits but not quite as strong as the top line growth.

Q3: The market seems to be keen to see CentralNic Group reduce its debt position, should we see continued progress in this?

A3: I think over the long term, definitely, the cash conversion of the business is very strong so they were able to convert about 93% of profits into cash in the nine month period so that’s progressing as expected and that’s contributing to the reduction in the debt that the market is looking for.

What’s happened in the last three months or so is that there have been some headwinds with respect to the reduction in net debt that is the objective, the reason for that is that they have debt that’s denominated in Euros and the Euro has been very, very strong over the last three months so that’s resulted in a currency headwind on the debt figure. They’ve also been the situation where they’ve had to pay on earnings for acquisitions they’ve made in the past and that being a bit of a headwind as well.

So, for these last three months, there’s been no progress on the reduction in net debt but going forward, there’s every expectation that that net that’s going to reduce from year to year to year. So, the prospects long term are still looking very, very good on that front.

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