CentralNic Group (LON: CNIC) has a solid set of interim results for the first six months of FY2019E, it was a busy period with the group completing 3 acquisitions immediately post the period end, issuing a €50m listed bond instrument and making solid progress in delivering on its stated accelerated strategy. Revenue for the first six months is up 225% yoy, with c.6% organic growth, in line with long term trends for the group. These results are the first time the group have reported in US Dollars. The group’s main functional currency is USD and we believe this is a sensible decision and should remove some currency related risk from the forecasts. CentralNic has made significant progress in delivering on its stated strategy of supplementing organic growth with quality acquisitions, focusing on recurring revenue businesses, in attractive regions. On our new USD based forecasts, the group trades on a 2019E EV/EBITDA of 8.7x (falling to 7.0x in 2020E) and a P/E of 11.0x.
- Interim results: Revenue was up 225% YoY to $49.7m, which was ‘virtually all’ recurring subscription-based revenue. Gross profit was up 127% to $19.7m (H1 2018: $8.7m). Adjusted EBITDA increased by 203% to $9.2m (H1 2018: $3.1m). Operating profit increased by 266% to $2.4m (H1 2018: operating loss of $1.4m). Net debt was reduced by 47% to $6.0m (H1 2018: $11.3m). The group made significant progress operationally, winning a number of significant clients including Automattic (the parent company of WordPress), the Alpnames portfolio of c. 680,000 domain names assigned by ICANN and The Kingdom of Bahrain, for registry provision services. The group is on track to make more than $1.0m of cost savings in the FY19, from the integration of the KeyDrive acquisition, which has exceeded financial targets to date.
- Post period events: Immediately post the period end, the group completed three acquisitions, continuing to progress its stated strategy of acquiring recurring revenue businesses in attractive regions. Net Debt restated for the bond issuance and the three new acquisitions would be approximately $35m, assuming the simultaneous completion of all the transactions on 30 June 2019.
- Forecasts We leave our full year assumptions unchanged. We tweak our 2021E forecasts, reflecting the progress made in integrating acquired businesses, we now anticipate CentralNic integrating the businesses and achieving a performance in line with longer terms trends achieved by the group historically of a 6.0% underlying organic growth rate and adj. EBITDA margins at 16.0%.
Valuation: CentralNic Group trades on a 2019E EV/EBITDA of 8.7x and a P/E of 11.0x. We believe this valuation is compelling given the track record of the business, the quality of the earnings and cash generation. It is also underpinned by our DCF analysis, which implies a valuation of c.120p per share