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CentralNic Group Updating forecasts (Zeus Capital)

CentralNic Group PLC (LON:CNIC) have released a positive trading update this morning, confirming trading for 2019 to be in line with expectations. We update forecasts to reflect the successful completion of the acquisition of Team Internet. We reduce our assumptions regarding the contribution of Team Internet to the forecast period compared to November reflecting a lower EBITDA run rate reported in Matomy Media’s Q3 update in December. We also review our FX assumptions, taking a slightly more conservative view. We now expect adj. EBITDA in 2020E of $31.5m, growing to $33.1m in 2021E, this represents a 37.3% earnings accretion in 2020E and 28.1% in 2021E compared to pre-acquisition EPS forecasts. 2019 was a very active year for the group from an M&A perspective and clearly, they have made significant progress scaling and diversifying the business. The shares have responded well to this, reaching an all-time high of 91p in December 2019. We see potential for a further re-rating as the acquisitions are integrated and potential synergies are realised. 

  • Trading update: CentralNic’s has delivered a solid set of results in 2019E with revenue of US$107 million, up 91% from US$56 million in financial year 2018. Q4. Adjusted EBITDA increased by 95% to US$17.8 million in financial year 2019 as compared with US$9.1 million in financial year 2018. The unaudited net debt position as of 31 December 2019 was US$76 million.
  • Team Internet: Operates a ‘domain monetisation’ platform. This allows domain owners to generate recurring income to offset renewal fees or earn a profit. CNIC paid a total consideration of $48m, representing 4.5x trailing EBITDA to June 2019. Initial consideration will be made up of $42m payable in cash and $3m payable in shares with a deferred $3m cash payment. The acquisition will be financed through a further €40m ($44m) issue of senior bonds, under identical terms to the €50m issue announced on the 23rd May, paying a floating rate of 3-month EURIBOR +7% (with a floor of 0% on EURIBOR).
  • Forecasts: We update our forecasts to reflect the impact of this acquisition. We reduce our assumptions regarding the contribution of Team Internet to the forecast period compared to November reflecting a lower EBITDA run rate reported in Matomy Media’s Q3 update in December. We also review our FX assumptions, taking a slightly more conservative view. We now expect revenue of $203.7m in 2020E growing to $213.6m in 2021E. Adjusted EBITDA post acquisition in 2020E is $31.5m and $33.1m in 2021E. Net debt on updated forecasts is $68.6m in 2020E falling to $55.0m in 2021E representing 2.1x and 1.7x EBITDA in 2020E and 2021E respectively.
  • Valuation: On updated forecasts, CentralNic Group trades on a 2019E EV/EBITDA of 15.4x and a P/E of 17.7x. We believe this valuation is compelling given the track record of the business, the quality of the earnings and cash generation.

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