Centralnic Share Discussion Threads

[adamb1978] 01/3/2023 19:50

As King Suarez said...plus you're required to run an impairment test each year (i.e. check whether the amount of goodwill really is still valid) or whether it should be written down more quickly than the amortisation schedule

Personally I ignore all amortisation relating to acquisitions but DO include amortisation relating to capitalised R&D, of which there is none at CNIC

[king suarez] 01/3/2023 19:07

No, goodwill is just an accounting concept related to the difference between acquisition cost and the estimated 'fair value' of the net assets acquired (as bodicea explains in post 2670).

Example - you pay $100m to buy company A, but the fair value of company A's net assets is calculated to be worth $80m. Goodwill on acquisition is therefore $20m - you have 'overpaid' on an accounting estimate - but this is likely because there are 'intangible' synergistic benefits to your business that exceed the value of acquisition such as economies of scale, access to expanded customer base, accretive skills/software etc.

The accounting entries are to credit cash $100m, debit your net assets balance $80m (combination of fixed/current assets acquired and net of any liabilities acquired as part of purchase such as trade creditors, loans etc) and debit your fixed assets by $20m goodwill. This $20m of goodwill is then amortised over time as a P&L expense, so it affects profits, but not cash flow.

There acquisitions have happened and been paid for in full already. There is no additional deferred payment. Again, this is an accounting treatment.

[adamb1978] 01/3/2023 10:38

Go for it...I might copy/paste another part of the results in response!

[adamb1978] 28/2/2023 19:49

3. Change of functional currency


On 1 January 2022, CentralNic Group Plc, the parent company of the Group, changed its functional currency from EUR to USD. The change was made to reflect that, when taking into account the impact of derivative financial instruments, USD has become the predominant currency in CentralNic Group Plc, accounting for a significant part of the parent company's foreign currency borrowings. The change has been implemented with prospective effect only and comparatives have not been restated. The financial impact of the change is that the revaluation of the EUR-denominated debt (USD 20.2m reduction in borrowings) is processed through the profit and loss account rather than through other comprehensive income. The change in functional currency also has necessitated a review of the hedge accounting treatment of the forward foreign exchange contracts with HSBC Bank Plc and Global Reach Partners Limited. Following the change in functional currency, these forward foreign exchange contracts were no longer considered to be effective and the cumulative cash flow hedging reserve as at 31 December 2021 was recycled through the profit and loss account for the year ended 31 December 2022.

[rbewes] 28/2/2023 17:59

why is there a cash cost of 25m settlement of forward exchange contracts?

[adamb1978] 28/2/2023 09:58

Just listened to the investor call from yesterday. Good hat they mentioned cost control and plan to get operating margins up. Also mentioned that a share buy back would likely be on the agenda again but they're in the process of a capital allocation process.

I think this has a lot of upside from here

[adamb1978] 28/2/2023 08:33

re the comments above about exceptional costs, the notes to the accounts show that these primarily relate to acquisitions - advisory costs in getting the deals done, restrcuturing (ie generating the synergies) and amortisation of intangibles

You'd expect them to therefore reduce in quantum, and as the company is growing, reduce even more sharply as a % of clean profit

[rivaldo] 28/2/2023 07:42

Berenberg retain their Buy and 250p valuation:



"Berenberg backs Centralnic to repeat 2022 performance

Berenberg remains ‘bullish’ on IT services group Centralnic (CNIC), which is confident the strong performance it delivered last year can be extended into 2023.

Analyst Bharath Nagaraj retained his ‘buy’ recommendation and target price of 250p on the stock, which softened 1.4%, or 2p, to 137.5p yesterday.

The group reported an ‘excellent’ full-year with 60% organic top-line growth year-on-year and ‘a near doubling of free cashflow’.

‘While it is still early days in full-year 2023, the group remains confident about another year of robust growth and shareholder returns,’ said Nagaraj.

‘This confidence in the group’s cash-generating ability has prompted management to announce a maiden dividend of 1p for full-year 2022, which follows the group’s maiden share buyback towards the end of last year.’

While Nagaraj said his growth expectations for 2023 are ‘modest’ there is still ‘scope for upgrades’.

‘The group has achieved a 35% organic top-line growth compound annual growth rate over the past three years and the new management team is focused on disciplined capital allocation,’ he said. ‘Hence, we continue to be bullish about CentralNic, especially considering its undemanding valuation of 8.5 times price/earnings.’"

[robsy2] 28/2/2023 07:41

CNIC made a profit before tax of 14.8m USD in 2022 (2021 1.6m USD), so barely profitable. While I think they over-egg the EBITDA figures,a lot of what they strip out is fair and those adjusted figures do show the rush towards profitability.
Sure the Balance Sheet is still quite strained, but cash flow is fantastic and allows them to get the debt falling away rapidly, and if cash flow stays so strong which it should do,and the business continues to scale-up without further M&A, which they are confident about, then we are going to be in a very good place indeed. So yes the company is barely profitable but the future looks bright though clearly they need to keep smashing the forecasts for a few years yet to convince the broader investment community.
I attended the presentation meeting yesterday and was greatly reassured.

[boadicea] 27/2/2023 21:42

After a series of acquisitions a balance sheet tends to become bloated with acquired intangib;les, i.e. the excess of capitalised acquisition cost over the value of the tangible assets acquired. Companies generally prefer to write these intangibles down to more modest levels but the process, which has no cash implications, appears as a charge against profit for the year. CNIC wrote its intangibles down by USD36m, a sum which remains as positive cash flow into the bank but without a corresponding profit.

[rbewes] 27/2/2023 20:28

The loss has actually increased to 9,581 there are some items that may end up in the P&L.

why is there a cash cost of 25m settlement of forward exchange contracts?

[pyemckay] 27/2/2023 20:02

yes, it is a loss making company at the moment.

[martinthebrave] 27/2/2023 16:51

Bought in at the death C.137p. Couldn't understand the share price action today after what I felt were excellent results. Seems I am not alone!

[rivaldo] 27/2/2023 15:53

The IC say Buy:



"CentralNic intends to pay dividend for first time

The company is growing rapidly and now has enough cash to start giving some back to shareholders

February 27, 2023
By Arthur Sants

Cash flow continues to grow
Advertising business seemingly immune to wider downturn

New CentralNic (CNIC) chief executive Michael Riedl has inherited a company in good health. Formerly chief financial officer, Riedl took over after previous chief executive Ben Crawford retired at the end of last year.

CentralNic buys and sells internet domain names, but this also positions it to broker digital advertising deals. Advertising is now the company’s main growth driver. Despite the wider downturn in the advertising industry, CentralNic reported that marketing revenue increased 120 per cent to $314mn (£260mn). The number of visitor sessions rose 77 per cent to 4.6bn and revenue per session was up 37 per cent.

The benefit of CentalNic’s marketing strategy is that it doesn’t rely on tracking, so is not threatened by Apple’s (US:APPL) privacy rules. As the company has visibility over its domains, it can use context to place adds. For example, it would make sense to place walking boot adverts on a camping blog. CentralNic relies on software to place the ads, so as its scale increases so does profitability. Operating profit increased 172 per cent to $33.6mn in the period. Meanwhile, the asset-light nature of the business means it can turn a lot of this profit into cash, with adjusted operating cash conversion at 110 per cent. With this much cash, the directors now “intend to propose” a dividend of 1p a share for the first time.

The market so far hasn’t seemed to recognise CentralNic’s value. FactSet broker consensus expects free cash flow to rise to $65.3mn in 2024, which would give an enticing free cash flow yield of 14.0 per cent. For comparison, rival GoDaddy (US:GDDY) in the US has a 10.1 per cent 2024 cash flow yield. We stick to buy."

[rivaldo] 27/2/2023 14:00

Berenberg had a 250p valuation here even before today's results - haven't seen anything from them yet.

Zeus have a 214p DCF valuation per today's research update, and that's based on "conservative" forecasts.

Google's removal of support for third party cookies in its Chrome browser by the end of this year should also lead to further turbo-charging of demand for CNIC's tech, as Apple's updates to its operating system has done from early 2021.

And as Adam pointed out the large fall in interest payable this year due to (1) new facilities and (2) reduced debt will help the bottom line nicely.

I'm happy to hold and add more. The current valuation is far too low imho.

[gswredland] 27/2/2023 13:41

I'm a holder and I am patient here.It is also becoming a day traders dream.
If we do get into the 120's again I intend to top up fairly significantly.
We will ultimately be rewarded here guys!

[adamb1978] 27/2/2023 13:41

Hi Doobz

If growth slows a little they could probably take out a pile of sales and marketing costs and be even more profitable.

The cash generation from this business looks excellent so if the price remains where it is, it'll be taken out either by a competitor or private equity. The cashflow from the business could support the debt needed for a buy-out and generate excellent returns.

Adam

[doobz] 27/2/2023 13:18

It's fairly normal for cnic to not react well to good results however with the tip and divi I expected this to be different today. The issue I have is what happens if the growth even slows a smidge. Market doesn't favour this lot at all, no sense

[boadicea] 27/2/2023 13:14

You'll have a hard time arguing with the market however illogical All one can do is wait patiently for it to see sense.
There are many blatant anomalies out there. E.g. compare DATA and CNIC (both reported today). DATA has a highly borrowed balance sheet that looks quite dodgy and trades on an adjusted PE of 28. CNIC has a much better bs, phenomenal growth record and is rapidly paying down its relatively modest debt - and trades on an adjusted PE of 7.

[cgequityinvest] 27/2/2023 11:54

Many of us are no doubt surprised and frustrated by the market response over the last few months. But at times like this I recall the Warren Buffett quote : “The stock market is a device for transferring money from the impatient to the patient”

[niklol] 27/2/2023 11:52

This market is brain damage!!!!

[jeanesy] 27/2/2023 11:29

Sometimes that doesn't happen though Adam sadly .

[adamb1978] 27/2/2023 11:10

Hi Pete

Understand the frustration but all you can do is buy good companies and wait for value to come out. The cash which CNIC will be throwing off has to go somewhere, whether further acquisitions, buybacks, dividends etc

Adam