Centralnic Share Discussion Threads

[74tom] 01/3/2021 21:59

Sure, it’s very obvious they are an acquiring company, but they need to start delivering growth in free cash flow and reduce their net debt rather than splashing it on more acquisitions. And yes net debt was $84m at year end but they’ve added another $18m since then.

They said after the team internet acquisition that net debt would be 2x EBITDA after the first full year of operation, in actual fact it was $84 / $30 = 2.8, which is a 40% miss.

Let’s see where the market takes it over the coming months.

[dunns_river_falls] 01/3/2021 16:16

Decreasing margins seem to be related to the changing dynamic of the business. New product releases may help to arrest the decline. Happy to give this some room and see how it plays out.

[rivaldo] 01/3/2021 16:08

This is an acquiring company with a buy and build strategy. The point of the operation being to bolt on acquisitions at a reasonable price and then gather in savings via synergies and cross-selling as the acquisitons are generated. It doesn't surprise me at all that gross margins have fallen due to the heavy investment which CNIC are making in integrating and growing their expanding operations.

The benefits of these measures will fully come through over time (and Zeus do talk in detail about the debt - it's in the extract posted above by davebowler! Plus net debt is $84.9m, not €120m - perhaps better to comment on the true overall picture rather than just the most negative one).

Above all, 99% of revenues are recurring according to today's results narrative. This provides about as strong a guarantee as you can get in terms of future security of revenues and debt repayments

[saucepan] 01/3/2021 12:30

74tom: a good, critical, post in my view. It perhaps helps explain why the market is not sufficiently convinced to re-rate the stock.

I have followed CNIC with interest for a long time, dabbled in and out, but have always had nagging doubts that I could not quite put my finger on. I have no holding currently.

Ben Crawford not having significant skin in the game has always been a sore point with me, too.

[74tom] 01/3/2021 11:08

What Zeus Capital fail to mention are the declining gross margins and increasing levels of debt, alongside significant finance costs.

2018 Gross margin was 46% on revenue of $55m
2019 Gross margin was 39% on revenue of $109m
2020 Gross margin was 31.5% on revenue of $241m (GM split evenly between H1&H2).

Add in the fact borrowings have increased by $12m YoY despite them making repayments of $9.8m & further increases in indebtedness post year end to fund additional acquisitions & you could very easily paint a contrasting picture to the broker view.

Their bond debt is around $120m at present, with terms as per below which were disclosed in January;

"The Bond matures in July 2023 and has a coupon of three-month EURIBOR* plus 7% p.a.. Early repayment of the Bond is subject to certain penalties which reduce in quantum the closer the repayment date is to the original maturity date."

Given they are incurring finance costs of $9.5m per annum, having increasing debt & have declining gross margins, I'd say the current valuation is pretty rich.

Certainly if the EURIBOR rate starts to increase from it's current negative position in response to rising inflation post pandemic then they are going to need to jump through some hoops in order to renegotiate the refinancing of their bond.

I'd also add in that Matomy Media - the company from which they acquired Team Internet - overstretched and got crushed by it's bondholders back in 2018 - it would be ironic if the same thing happened here.

[davebowler] 01/3/2021 09:21

Zeus-
Q4 update
CentralNic released unaudited preliminary 2020 results showing pro forma 9% revenue growth, ahead of expectations (ZC: 4%). The company continues to take market share in a growing market. EBITDA was in line with consensus expectations but below our top of consensus forecasts. CNIC is increasing investment in new products and integration, which we expect to continue in 2021 and provide net returns in 2022. The company’s results demonstrate its ability to integrate, scale and extract synergies from acquisitions. We see potential earnings upside from the Codewise acquisition and expect CNIC to deliver further significant earnings accretive acquisitions in 2021.

Strong top line growth: 2020 revenues were strong at $241.2m, 6% ahead of even our optimistic expectations of $228.0m and 9% ahead of consensus expectations of $222.2m, which were already upgraded after strong H1 results. Pro forma total revenue growth was an impressive 9% and 16% excluding Codewise. Growth was led by Monetisation division, which grew 35% excluding Codewise. The online advertising market continued to growth strongly and CNIC’s patented SSL monetisation solution continued to take market share. Indirect sales grew pro forma 7%, driven by strong management of top 10 accounts. Direct sales were flat on a pro forma basis due to some clients reducing costs when uncertainty around the pandemic peaked. Direct sales expected to return to solid growth in 2021.

EBITDA in line with consensus: The company released 2020 results in line with consensus expectations. EBITDA was $30.6m (4% pro forma growth), in line with consensus of $31.2m and 7% below our optimistic estimate, which is at the top of consensus range. CNIC significantly increased investment in growth in Q4, with annualised pro forma expenses rising to ~$49m from ~$44m in Q3 2020. We expect investment to continue in 2021 with benefits beginning to accrue in 2022, where we upgrade our EBITDA estimate to $45.7m from $43.9m.

Post period end events: The company acquired Wando Internet Solutions for $6.5m upfront plus earnout of up to $6.5m and SafeBrands, a French Enterprise Domain Management and Online Brand Protection provider, for $3.7m plus a deferred consideration of $0.7m. The acquisitions were funded through €15m of senior secured callable bonds issued at 104.5% of nominal value, reflecting debt capital markets’ positive outlook on CNIC. Net debt was $84.9m at period end, above our estimate of $75.2m largely due to the strong appreciation in the Euro, slightly higher EBITDA estimate and acquisition fund raising related fees.

Outlook: The company appears well positioned continue taking market share and consolidating the market. CentralNic is taking advantage of its expanded scale to invest in new products and integration, potentially improving growth and margins. At the same, time the company continues to assess a number of acquisition opportunities, which are expected to be significantly accretive to earnings. See forecast revisions and valuation discussions overleaf.

[rivaldo] 01/3/2021 08:27

Zeus Capital this morning conclude as below that CNIC are "attractively valued" - they've raised their revenue forecast for this year whilst keeping EBITDA the same, and have raised EBITDA forecasts for next year to $45.7m:

"Valuation

CentralNic is attractively valued against both direct and indirect peers. The company trades well below GoDaddy, its closest significant peer, but we are cognisant that it is listed on the highly valued NASDAQ market.

Regardless, CentralNic also appears undervalued against UK managed services peers. CentralNic trades on a PE of 12.5x FY2 compared to a median of 18.6x for this peer group,despite offering significantly higher EPS growth of 26% compared topeergroup median of 6%. The company’s EV/ EBITDA FY2 is approximately in line with UK managed services peers while CentralNic offers higher earnings growth. We believe strong earnings performance should lead to multiples expansion while further accretive acquisitions could drive strong earnings growth. We expect these drivers should lead CentralNic shares to outperform over the medium term."

[rivaldo] 01/3/2021 07:36

Results out - revenues are way ahead of expectations at $241.2m against forecast $228m.

And 10.25c adjusted EPS is also way ahead of expectations of 8.9c.

Importantly, this year has begun well with nicely in-line trading. And recurring revenues are at 99% now.....

Of course there are lots of adjustments to get to that adjusted EPS, stripping out amortisation, non-core expenses etc. I'm OK with that to see what the continuing core business is achieving - which shows it's in fine fettle.

[iandippie] 25/2/2021 14:47

Like watching paint dry here...:-€

[weatherman] 24/2/2021 12:18

SO they caught a fish called Wando.

[diesel] 24/2/2021 09:17

Well the market doesn’t seem too impressed, but there again I don’t think this widely known or understood, roll on Mar 1st.

[rivaldo] 22/2/2021 07:31

Excellent news this morning - what looks to me a very cheaply priced and accretive acquisition:



For just €5.4m CNIC are picking up a business making €1.2m annual EBITDA - the remaining maximum €5.4m is based on stretching performance targets.

And there are likely to be material synergies:

"CentralNic's distribution network is an important sales channel for Wando, representing more than half its revenue. Through a closer vertical integration, CentralNic expects to grow Wando's sales."

The CEO sums it up nicely:

"Ben Crawford, CEO of CentralNic, said "We are excited by the vertical integration that this acquisition brings. Wando provides us with a new platform, expert staff, and a growing, profitable extension to our existing business and we expect it to bring accelerated growth and augmented margins for our fast-growing monetization business."

[davebowler] 16/2/2021 22:13

hTTps://www.express.co.uk/news/world/1398624/France-latest-brexit-news-Emmanuel-Macron-domains-name-ban-for-british-afnic

[rivaldo] 15/2/2021 07:10

Results will be out on Monday 1st March - only two weeks away:



A Monday is often the day to announce good news (and Friday bad!). Given the confidence shown on 30th November in the 9 months' results, we can be pretty confident that these results will indeed reflect good news.

[slim9] 11/2/2021 20:48

Give us clue Rivaldo

[rivaldo] 11/2/2021 08:05

A single share boiught at 100p first thing on the opening bell this morning :o))

One of those "legendary" signals from the MMs you often read about?!

[rivaldo] 10/2/2021 11:24

There should be a year end trading update any day now, given the 5th and 4th February updates in the last two years. I suspect CNIC probably wanted to finalise the bond issue before issuing the trading update.

Given the confidence shown in the 9 month trading update to 30/9/20 I'm confident it will be at the least in line with expectations.

[rivaldo] 09/2/2021 07:13

Indeed - especially after today's RNS, having raised another €15m of bonds.

Great to see that the issue was oversubscribed too. Given the company's ambition I suspect it won't be long before another acquisition.

[dunns_river_falls] 08/2/2021 08:36

Sounds like they are ready to go with acquisition targets.

[rivaldo] 05/2/2021 14:48

CNIC have now entered the top 10 global domain name registrars:



All the others are major US or Chinese names like Verisign, Alibaba, Google, GoDaddy etc - with the quoted ones trading at far higher multiples than CNIC.

[tole] 01/2/2021 10:05

Good sized trade 1.5m cleared.

[dunns_river_falls] 27/1/2021 14:22

Good chance of a trading update next week, judging by previous years

[rivaldo] 27/1/2021 14:02

For the record, in December's issue when Techinvest made CNIC the first holding in their new portfolio they stated:

"we very much see CentralNic as a long-term holding given the strong niche the company is establishing in the rapidly growing market for global domain name services. We like companies such as CentralNic that are well positioned to build out from a strong defendable base".

[rivaldo] 21/1/2021 23:13

A nice 50,000 share buy at 101p reported at the close. Hopefully there's another surge to come.