CentralNic Group “Codewise acquisition could raise monetisation market share to 37%” says Zeus Capital


CentralNic Group plc (LON:CNIC) has agreed to acquire Codewise, which consists of Zeropark, a monetisation business similar to Team Internet, and Voluum, a complementary online marketing SaaS provider. CentralNic is consolidating and market at attractive valuations, delivering synergies and improving target company operations.

Overview: Zeropark operates a marketplace for domain name investors seeking monetisation and marketers seeking traffic. Voluum provides a SaaS marketing platform that helps SMBs track and analyse traffic sources, campaigns and performance data to optimise advertising campaigns. Codewise generated revenue of $60.3m and Adjusted EBITDA of $7.4m in the LTM ended June 2020.

Strong growth and high cash conversion: On an annualised basis, Codewise has grown revenue 21%, gross profit 13% and Adjusted EBITDA 37% over the 18 months to June 2020. Over 100% of operating profit is typically converted to cash.

Attractive valuation: CentralNic is paying a total of $36m or 4.9x LTM Adjusted EBITDA. We believe this is an attractive multiple given the company’s good growth, high cash conversion and peer valuations. CentralNic acquired Team Internet for 4.5x LTM Adjusted EBITDA in Q4 2019. Listed domain name peers, Minds+Machines and R22 SA, trade at 23x and 12x LTM EBITDA, respectively.

Strong earnings accretion: To fund the acquistion and all associated transaction fees and expenses, the company has raised £30m in equity at a price of 75p (40m new shares). We preliminarily estimate the transaction is 21% accretive to basic EPS in 2021E and 23% in 2022E. Other acquisition benefits below:

  • Codewise adds scale to the high growth Monetisation division (H1 2020: 38% pro forma growth). We forecast Codewise could push Monetisation revenue from 44% to 57% of 2021E group revenue.
  • The acquisition eliminates a competitor. Codewise is considered be a top competitor to Team Internet. We estimate the acquisition could raise CentralNic’s share of the monetisation market to 37% from 26%.
  • CentralNic Group is targeting about $1m of synergies based on cost and cross-selling.
  • Codewise diversifies the company’s customer base and products. Codewise adds about new 6000 clients across 190 countries. While Team Internet is partnered almost exclusively with Google, Zeropark partners directly with many small advertisers. While Team Internet provides click-through advertising, Zeropark markets alternative formats such as redirection and push advertising.
  • The acquisition and equity funding reduce Net debt to Adjusted EBITDA as at end of June 2020 to 2.1x from 2.6x on a pro forma basis.
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