CentralNic’s growth is accelerating rapidly says Zeus Capital

CentralNic Group plc (LON:CNIC) growth is accelerating rapidly and benefiting from the trend towards tightening privacy policies. In addition, margins are expected to widen after current investments plateau and the company expects further earnings accretive acquisitions.

9M 2021 results: Revenue and EBITDA were $282.0m and $32.3m, both in line with over $280m and over $32m indicated in the trading update in October. We estimate group gross profit grew 27% organically (see overleaf). Cash conversion was 113%, compared to over 100% flagged in the trading update and 93% a year ago. Net debt fell to $79m from $85m, indicating $19m of cash generation before payments for acquisitions ($11m) and earnouts ($2m). 

Organic revenue growth accelerated to 29% in 9M 2021 from 9% in 2020, driven by 47% organic growth in Online Marketing. In particular, growth was led by the division’s PubTONIC product, which acquires and qualifies highly converting traffic for advertisers. (Please see overleaf for overview.) Online Marketing was also boosted by Google and Apple’s removal of support for third-party cookies in their browsers. We suspect advertising has been diverted away from companies that depend on third-party cookies towards companies like Online Marketing, which targets advertising without the use of any cookies.

Rising contribution from growth business: The high-growth Online Marketing division grew to 50% of group gross profit in 9M 2021 from 36% in 9M 2020. This favourable change in mix supports a strong profit growth outlook for the group. The remaining Direct and Indirect segments have been combined into a single Online Presence segment, which grew 9% organically, driven by acceleration in domain name sales and successful cross-selling of value added services.

Strong long-term margin outlook: CentralNic continues to invest heavily in management and infrastructure but investment is expected to plateau and widen EBITDA margins. Adjusted Expenses as a percentage of gross profit increased to 62% in 9M 2021 from 60% in 9M 2020. CentralNic appointment Carsten Sjoerup in the new role of CTO to lead the integration of technology and product teams, but we expect such investments and expense percentages to peak in H2 2022.

Forecast revisions and valuation: We raise our forecasts to account for the strong trading above and the acquisition of the publishing network announced in September. For 2021, we raise revenue 8% to $385m and EBITDA 2% to $42.5m. For 2022, we raise revenue 9% to $410m and EBITDA 5% to $49.5m. Shares now trade at 12x EV/EBITDA 2022 while offering 17% adjusted earnings growth in 2022.

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