Q1: CentralNic Group just released its H1 trading update. Organic growth has been a focus for some investors, how has revenue growth been in H1?
A1: Revenue growth was very strong, H1 revenues expected to be over $110 million which his 11% above forecasts and also, if you compare that H1 revenue against full year estimates, it indicates that some upgrades maybe on the way.
H1 revenue now represents about 55% of our full year forecasts and H2, in all respects, should be stronger than H1 due to the seasonality of the business because the business is underpinned by ecommerce which is definitely second half weighted.
So, it’s looking like a very very strong organic growth trend that the company is on.
Q2: I see that EBITDA was $15 million, in line with market expectations, how do you interpret this?
A2: Yes, so you see here that the performance of the profit level was in line while you’ve got the strong outperformance on the top line and that’s indicates, at least to us, that revenue mix is probably more bias towards some of the lower margin revenue lines.
In particular, the recently acquired Team Internet business appears to have materially outperformed in the first half and this continues a trend that we’ve seen over the last couple of quarters. More important to us is that this really reinforces the strong shareholder value has created through this acquisition.
Q3: Gross cash has moved ahead while net cash was relatively stable, what do you see underlying these movements?
A3: The gross cash grew about $3.5 million in Q2 but net cash grew only about $0.5 million, we’re assuming that the $3 million difference may have been due to the recent strong appreciation of the Euro because the company debt is denominated all in Euros. So, I think it’s a currency issue and a one-time issue.
What it does say is the underlying cash conversion is strong but I think in this quarter, at least, it’s been offset by the strong Euro.
Q4: Finally, can you give us a quick view on CentralNic Group’s valuation?
A4: If you look at the company shares, they’re only trading 8x 2020 EBITDA which is significantly below its peers, the PE is about 10x and a 9% free cash flow yield.
We believe those metrics are highly attractive given the company’s got some very very strong organic growth which has been demonstrated in this H1 trading update. It’s got high recurring revenues, it’s demonstrated its resilience during the pandemic and it’s got high cash conversion as well.
So, overall, those metrics are quite attractive given those characteristics.