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CentralNic Group Pulling ahead says Zeus Capital

After completing six acquisitions over the last two years, CentralNic Group PLC (LON:CNIC) has diversified its market exposure and significantly improved its competitive position. In this report we provide an update of the company’s markets and its competitiveness within each market. We conclude that CentralNic’s increased scale and broadened market exposure puts it in a strong position to consolidate the market and deliver further synergies to investors. We provide our estimates for H1 2020.

Diversified market exposure: The company has expanded market exposure to include domain name investors in addition to resellers and end users of domain names. CentralNic has also improved its market growth outlook. The company is now exposed to the rapidly growing digital advertising market (10% growth) as well are the domain name market (4%+ market growth).

Improved competitive position: CentralNic’s Reseller division is now one of the two largest independent wholesalers of domain names globally and its Monetisation division leads the market with c.26% share. Its Direct division has been strengthened with a global infrastructure that should position it strongly in a market dominated by local competitors.

Market consolidation opportunities: CentralNic’s increased scale and broadened market exposure, combined with its proven management team, puts it in a strong position to consolidate the market. The domain name markets remain largely fragmented with competitors often owner managed. This should provide substantial opportunities for CentralNic to deliver synergies by consolidating technology platforms, reducing administration costs and increasing sales productivity. The company has already provided early evidence of synergies from recent acquisitions. Management has already delivered acquisition synergies equal to about 15% of pre-acquisition EBITDA and expects to realise further synergies from these acquisition during the remainder of 2020. We see CentralNic further consolidating the market and delivering synergies for investors.

Attractive valuation: We believe that as CentralNic Group increases in size and builds a track record of earnings outperformance and successful acquisition integration, its multiples will rise to approach its peers. Shares trade at only 10x EV/ 2020 EBITDA, a sharp discount to peers, GoDaddy and Tucows, which trade at 18x and 11x EV/ 2020 EBITDA, respectively.

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