Q1: CentralNic Group announced a strong trading update and two small but accretive acquisitions. Can you first off just tell us what’s driving that strong trading and perhaps give us some details around the acquisitions?
A1: The company announced that its strong growth in 2021 has continued into 2022 with revenue growth year to date, materially ahead of consensus expectations for the full year. They believe now that full year growth will be at least 14%, which is at the top end of consensus expectations so we should see numbers moving up on the back of their commentary.
The strong growth been largely driven by its online marketing division, the division has a really unique product that’s benefiting from Apple’s removal of support for third party cookies and their browsers. This is the issue that Facebook has been having but it’s been actually beneficial to CNIC so the online marketing division has got a product that can source good traffic for advertisers without the use of these third party cookies.
So, as a result, a lot of companies are moving away from advertising that depends on third party cookies and towards really privacy-focused product so that’s why it’s doing really, really well and continues to obviously in 2022.
The company made a couple of small acquisitions, not a large transaction, it’s only about €600,000 but again, it demonstrates one of the drivers’ of the company, which is that they continue to find attractive, highly accretive acquisitions that are able to provide a lot of synergies with the rest of their group.
So, both positive bits of news this morning.
Q2: So, on the back of that news, what revisions are you making to your forecasts?
A2: It’s another positive surprise and this continues a trend that we’ve been seeing over the last several quarters of consistent upgrades. We saw in the first half of last year, good upgrades to revenues and then in the second half of last year, upgrades to both revenues and to profits.
Now, going into 2022, we’re continuing that trend so we’re upgrading our 2022 revenue by 14% and our EBITDA forecast by 4%. So, this is a stock that clearly has some strong earnings momentum and we’re expecting that to continue throughout the year.
Q3: Just looking at the tech sector as a whole, it seems to be under a bit of pressure at the moment. How do you see the company positioned for investors?
A3: It is a tech company undoubtedly, and a very, very innovative one but we think that despite the rotation that we’re seeing away from tech, the company, because of its characteristics, should be performing quite well.
The first point is that it’s not a high multiple stock that’s currently feeling most the pressure in the market right now, this is a stock that’s trading at only 10 times EBITDA, 14 times PE and even a free cash flow yield of 8%. So, the type of thing that even value investors would be looking for so I don’t think it should be caught in that downdraft.
The second point is in any uncertain environment that we might be seeing, they have proven that it has very, very high earnings reliability. Its online presence division provides internet infrastructure so clearly that’s going to be resilient during downturn and its proven to be the case. Its online marketing division is currently in a very strong secular growth trend, it was able to accelerate through the last downturn so lots of resilience provided fundamentally. It’s also got a very, very diverse customer base, it’s customer and customer bases consists largely of thousands and thousands of SEM’s so it’s not exposed to any one customer at all.
Finally, we touched on this briefly, the company is able to deliver a lot of value through acquisitions. It’s got a strong acquisition track record over the last couple of years, it’s a consolidator in the market and the market is mostly filled with smaller lifestyle businesses. As a result, it can source these attractive transactions that single digit multiples and realise significant synergies from them.
So, CentralNic Group, to us, appears undervalued and offers investors multiple catalysts for continued share price momentum.