Q1: CentralNic Group released their 2020 unaudited results this week. Bob, can you just give us a view of the company’s growth and how it’s varied across its three divisions?
A1: It’s done very very well in terms of topline growth, probably one of the best years and really demonstrates the resilience of the business during the COVID crisis. The business on a proforma basis grew 16% which is quite astounding given even one of the divisions was slightly impacted by COVID was more than offset by strong growth in one of the other divisions called the monetisation, which grew an extraordinary 35% during 2020.
That’s due to the fact that the online advertising market has been growing very very strongly. Also, that division has been taking market share due to a new product that’s really led the market in terms of innovation so that market has grown 35% and is expected to continue growing strongly.
There’s another division, the indirect sales division which grew 7% and the worst of the three divisions wasn’t bad considering COVID, it was flat proforma year-on-year and I think that is expected to rebound in terms of growth in 2021.
So, the prospects for growth are looking quite strong for the business.
Q2: Revenue growth was clearly strong as well, did the company’s profitability follow a similar trajectory to revenue growth?
A2: If you look at the EBITDA line, you’ll see that the growth there was on a proforma basis 4% and the results were in line with consensus on that front. What the business is doing is taking advantage of the strong growth they’ve had, particularly in the fourth quarter they started reinvesting some of those profits in things like new products and further integration of the various acquisitions.
So, you’ll see that the expenses in the group in the fourth quarter rose at least 10-% from the third quarter and that’s expected to continue in 2021 so I think in terms of the EBITDA line, it hasn’t grown at the same pace as the topline but the expectation is that should catch up as those investments start to show returns. We’re expecting that to happen, probably, in 2022.
Q3: Looking more strategically at the company, how well do you think it’s positioned in the market?
A3: I think it’s really well positioned from the point of view that it’s a domain name market, it’s a very very fragmented market and one that is subject to consolidation and the company being one of the biggest players in the market and best capitalised is going to be able to take advantage of that.
So, I would expect the company will be one of the consolidators in the market and that’s very very encouraging because what we see is that there’s lots of acquisition synergies to be had in the businesses there. Effectively platform businesses where they can take the acquisitions, get rid of significant amounts of cost, have that acquisition benefit from its broader infrastructure and its brand and I think that should lead to considerable synergies coming out of the acquisitions it makes.
We did have a chat with management and management definitely has a good pipeline of acquisition opportunities and they’re expected to be significantly earning-accretive going forward. So, I think the prospects are quite good in terms of the market positioning and the market itself is growing strongly, one of the driver being the online advertising market with much of the market and e-commerce growth being accelerated by COVID.
They’re definitely benefitting from that and that’s why we saw that 35% growth that we talked about earlier with respect to the monetisation line. So, I think both from a market perspective and from the company’s position in that market, it seems very very well positioned.
Q4: Finally, how do you see CentralNic Group valued against its peers?
A4: Despite what we see as a very positive outlook for the business, the company does trade on a discount in terms of PE versus its managed services peers in the UK. Currently, it’s trading around 13 times PE whereas the managed services peers are more so at about 19 times and this is despite the fact that the company offers significantly higher growth. So, they’re looking at EPS growth of 26% in the current year whereas its peers are only looking at 6%.
So, from what we can see, we’re getting higher growth for a lower multiple which makes it look quite attractive compared to its peers so we’re still very positive on the valuation for the group.