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CentralNic Group “Centred on performance” says Zeus Capital

We expect a solid set of 2019 results and a confident outlook from CentralNic Group plc (LON:CNIC) on 27 April. We believe our 2020 forecasts are prudent, factoring in only 4% revenue growth and no EBITDA margin improvement on a pro forma basis. We believe the company is fundamentally well positioned to grow even in the current environment. CentralNic is supported by high recurring revenues, products that are critical to online infrastructure and a growing underlying market. The company’s resilient growth prospects and conservative earnings expectations make its 9x EV/ 2020 EBITDA multiple highly attractive, in our view.

2019 results preview and breakdown: We expect results to be at least in line with the company’s 2019 trading update ($109m revenue and $18m EBITDA) given the company’s resilient fundamentals and the strong performance of its Team Internet acquisition. We update our 2019 forecasts for the Q4 and Team Internet trading updates. We include revenue and EBITDA breakdowns by existing and acquired businesses overleaf to provide greater transparency.

Confident outlook: We reiterate our 2020 and 2021 forecasts despite the sharp deterioration in the macroeconomic environment. Our confidence is based on CentralNic’s demonstrated resilience in the current environment and the conservative assumptions supporting our forecasts:

  • The company’s mission-critical products and recurring revenue model are resilient to budget cuts and its competitive positioning may be improving as the company consolidates the market. The company stated in its trading update on 6 April that it has not seen an interruption in its operations and trading is expected to remain resilient.
  • Our forecasts are conservative. They factor in only 4% revenue growth and no adjusted EBITDA margin improvement on a pro forma basis. In comparison, CentralNic has grown revenues 6% organically and recent acquisitions provide  opportunities for cost synergies that are not factored into our flat margin estimates.

Attractive valuation: Shares trade at only 9x EV/ 2020 EBITDA, a sharp discount to peers, GoDaddy and Tucows, which  trade at 17x and 13x EV/ 2020 EBITDA, respectively. We believe that as CentralNic Group increase in size and builds a track record of earnings outperformance and successful acquisition integration, its multiples will rise to approach its peers. .

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