CentralNic Group plc (LON:CNIC) released a very strong Q1 trading update, which drove the board to materially upgrade full year outlook even at this early stage of the year. The company further accelerated trailing twelve months organic revenue growth through Q1 to c. 51% (2021: 39%). Outperformance was again largely driven by the Online Marketing division, which continued to benefit from market share gains and market trends towards advertising solutions that can identify and refine consumer purchasing intent without third party cookies.
The company now expects full year results to be materially above consensus expectations. Given macroeconomic uncertainties ahead, we conservatively upgrade our revenue by 11% to $573.4m from $516.1m and Adjusted EBITDA forecast by 11% to $67.0m from $60.5m. However, we see further earnings upside in lieu of negative scenarios: If we simply annualise Q1 preliminary EBITDA and adjust for the VGL acquisition, we estimate EBITDA would reach $78m, equal to a 29% upgrade. However, even based on our conservative forecasts, CentralNic shares trade at only 7x 2022 EBITDA, 10x P/E and 11% FCFF yield.
Q1 update and forecast revisions
¨ Q1 trading: Revenue was c. $156m and Adjusted EBITDA was c. $18m. The company appears to be tracking well ahead of our full year forecasts. Simply annualising Q1 figures would result in revenue and Adjusted EBITDA of $624m and $72m, 21% and 19% above our original forecasts of $516m and $61m, respectively. Net debt fell to $65m from $75m at the end of 2021. Excluding c. $8m increase in net debt from the VGL acquisition and adding in $3m of increased bond hedge liability, the decrease in this adjusted net debt would be c. $15m, which was supported by over 100% adjusted operating cash conversion.
¨ Upgrade momentum: CentralNic Group is extending a string of earnings upgrades, supported by a strong investment case. They are a market leader in two high growth markets – digital advertising and domain name management. In addition, both divisions have attractive business models. They generate reliable revenues based on subscriptions and serve diversified customer bases. We believe the company’s strong growth, high revenue visibility, earnings momentum and high cash conversion are undervalued by its shares’ low multiples. Shares trade at only 7x 2022 EBITDA, 10x P/E and 11% FCFF yield. Our DCF valuation is 195p, 65% above the current share price.
Summary financials
| Price | 118p |
| Market Cap | £341m |
| Shares in issue | 289m |
| 12m Trading Range | 80p – 154p |
| Free float | 72% |
| Next Event | Q1 results – May |
Financial forecasts
| Yr end Dec ($’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 | -46.2 | -8.2 | 35.4 |
| EV/EBITDA (x) | 9.2 | 7.1 | 6.3 | 5.4 |
| EV/EBIT (x) | 9.9 | 7.5 | 6.6 | 5.7 |
| P/E (x) | 13.4 | 9.6 | 8.8 | 8.3 |
| FCFF yield (%) | 8.2 | 10.8 | 11.2 | 14.4 |
| Div Yield (%) | – | – | 0.7 | 1.5 |
Source: Audited Accounts and Zeus estimates
