CentralNic Group “results confirm strategy” says Zeus Capital


CentralNic Group plc (LON:CNIC) 9M 2020 ended September results confirm CNIC’s acquisition and growth strategy. The company delivered high pro forma sales growth with steady divisional gross margins. CNIC is investing in new products and integration activities to improve long-term growth and margins and expects current year results to be in line with management’s expectations. Acquisitions have added significant value and the company is assessing a strong pipeline of further opportunities. CNIC is well positioned to acquire at attractive valuations, improve target company operations and deliver synergies.

Solid growth: Revenues grew 17% pro forma in 9M 2020, led by 39% growth in the Monetisation division. (See key financial items overleaf.) The Monetisation division introduced new software, based on two proprietary patents, that take advantage of modern browser technologies and security standards better than competitors. Indirect revenue grew 8% due to the company’s successful focus on growing key accounts. Direct revenues were broadly flat (-2%) due to tightening corporate budgets during the pandemic, but CNIC is confident that growth will return after winning new clients and building a healthy pipeline.

Steady divisional gross margins and investing for growth: Gross margins across all three divisions have been stable but group gross margins declined yoy due to the strong growth of lower margin Monetisation revenues. As a result, gross profit growth was slower (10%) than revenue growth. EBITDA grew more slowly (4%) than gross profit due to management’s strategy of reinvesting in management and systems to ensure future ability to scale. Adjusted expenses were up 15% yoy as the company invested in new products and integration to accelerate future revenue growth. We make no changes to our estimates.

Strong cash conversion and prospective dividends: Cash conversion remained high at 93% in 9M 2020 and is expected to be approximately 100% for the full year. The Codewise acquisition has similar cash conversion to CNIC’s existing businesses. Strong cash generation has led the company to convert the Share Premium account into Distributable Reserve in anticipation of paying dividends.

Net debt: Despite continued strong cash conversion, net debt excluding funds from the capital raise ($37.3m) rose to $82.3m at the end of Q3 from $76.4m at the end of H1 2020 largely due to the strong Euro, which was up over 4% against the US dollar, leading to a revaluation of the Euro-denominated bonds. In addition, CentralNic Group made earnout payments due to the acquisitions of SK-NIC and GlobeHosting, as previously flagged, and the company paid for capital raising and integration expenses. Excluding these exceptional fees and expenses, net debt would have fallen in Q3. We update our estimate for net debt at year end to $75.2m from $67.1m but, after exceptional items in 2020, the company should continue to deleverage.

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