CentralNic’s potential upside from acquisitions may be underestimated says Zeus Capital


CentralNic Group (LON:CNIC) CMD gave us new positive insights into the company’s investment case. CentralNic’s organic growth is stronger than we thought, the Direct division generates high ROI, the monetisation market was shown to be critical to the domain name market, Team Internet’s market leadership was further reinforced and acquisition opportunities were shown to be larger than anticipated. These investment views are not reflected in CentralNic’s low valuation multiples, in our view.

Strong organic growth confirmed: CentralNic estimated that organic revenue growth accelerated sharply to 15% in Q1 2020. Q1 growth indicates potential upside to our full year organic growth estimate of only 4%. Similarly, annualised Q1 2020 revenue ($56.4m) is 11% above our 2020 revenue forecast.

High ROI opportunities: CentralNic provided customer acquistion cost and profit data that indicate the Direct division generates high return on investment. Customer acquisition cost (CAC) is only $30, while ARPU is $95 and margin is 47%. As a result, payback is only eight months. These attractive economics lead us to be optimistic on CentralNic’s plans to invest in sales and marketing.

Go Team!: The CMD evidenced the upside potential of Team Internet in multiple ways. First, Team Internet appears to be trading strongly. We believe the group’s 15% organic growth in Q1 was led by Team Internet. Second, Team Internet’s monetisation market may represent a larger opportunity than anticipated. It was shown to be a core part of the domain name world with over 28% of annual registrations estimated to be used for advertising. Third, Team Internet’s market leadership was further reinforced. Its market share can now be demonstrated based on revenues, websites using its technology and domain names under management. Team Internet was further differentiated as a “white hat”, premium operator, having cleaned up its customer base ahead of being sold to CentralNic.

Acquisition upside: The presentation gave us increased confidence that acquisitions will be a driver of earnings growth for many years and that CentralNic can extract substantial value from them. CentralNic believes there are hundreds of potential bolt-on acquisitions available and that it is seeing more acquisition opportunities since it is gaining a reputation as a well-managed consolidator of the market. The company’s acquistion execution capabilities are also building. CentralNic Group now has a proven template for integrating acquisitions and it has successfully demonstrated large synergies from, for example, consolidating technology platforms. CentralNic’s potential upside from acquisitions may be underestimated.

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CentralNic Group Plc
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Zeus Capital Ltd.

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