On Monday morning I spoke at length with Michael Riedl and Billy Green, the Group CEO and CFO respectively, of the CentralNic Group (LON:CNIC), following the announcement of the company’s Interim Results to end June.
I came away totally positive about the group, its services, its leading position in its marketplace and its potential over the next few years.
Furthermore, I also came away convinced that the group’s shares are significantly undervalued at the current 131.20p, at which the group is only capitalised at £364m.
I see the shares rising back above the 160p mark at which they peaked in the second week of January this year.
Thereafter I have no doubt that the market will start to properly recognise the value of its shares, scooping them up to and above the 200p level.
The Business
Just to remind readers about the basic business of one of my most highly favoured companies on the market.
The group is one of the world’s leading providers of internet infrastructure services.
It provides tools for users wishing to require more than just consuming internet content.
The fast-growing London-headquartered software company helps online consumers make informed choices through privacy-safe, AI-based customer journeys that convert general interest internet users into high-conviction buyers.
It also operates a leading network for the automated distribution of domain names and associated services.
It has delivered 78% CAGR since its IPO in 2013 through a combination of organic growth and acquiring and integrating cash-generative businesses in its industry with annuity revenue streams and exposure to revenue markets.
Its services are provided to users who wish to contribute, to communicate, to build, to promote and to earn online.
The group has a truly global presence, serving customers in practically every country in the world, aiming to build its critical mass, country by country, as a technology partner to the world’s leading companies and governments, as well as being an important service provider for small businesses.
The company that operates in two highly attractive markets: high-growth digital advertising (Online Marketing segment) and domain name management solutions (Online Presence segment).
The company’s Online Marketing segment creates privacy-safe and AI-generated online consumer journeys that convert general interest online media users into confident high conviction consumers through advertorial and review websites.
The Online Presence segment is a critical constituent of the global online presence and productivity tool ecosystem, where CentralNic serves as the primary distribution channel for a wide range of digital products.
The company’s high-quality earnings come from subscription recurring revenues in the Online Presence segment and revenue share on rolling utility-style contracts in the Online Marketing segment.
Fastest-Growing Companies List
On 2nd March the group announced that it announces that it had been recognised as one of the fastest-growing companies in Europe for the second year in a FT Report.
It has enjoyed a compound growth rate of 78% over the past 9 years, since it IPO-ed on the AIM Market, taking it from $4m in revenues to over $800m today.
In 2022 CentralNic’s organic growth was 60%, leading to an overall 77% revenue growth.
It was listed among the top-250 fastest-growing companies in the report published by the Financial Times in partnership with Statista, and among the top-50 fastest-growing Technology companies in Europe.
Share Buyback Programme
In early July the group announced a significant step-up in its Share Buyback Programme.
Its intention to buy back its first £4m of shares was declared on 30th December last year and was completed by 19th January.
The second £4m scheme was declared on 15th May and then on 3rd July that total programme was boosted to £30m as it was considered to be in the best interests of all shareholders, given the cash generative nature of the business.
The company stated that it reflects the group’s renewed capital allocation policy geared towards greater returns to shareholders.
The funding for this buyback is through the impressive continued strong operating cash generation.
So far, the group has bought back 5.7m shares at a cost of £6.7m, leaving just over £27m still available to complete the programme.
The Interim Results
For the six months to end June the group reported revenue of $396.4m, up 18%, and adjusted profits of $44.6m, 15% better.
Adjusted EBITDA was 16% improved at $44.6m ($38.6m).
Adjusted earnings per share increased 34% to 11.37c (8.46c)
Year-on-year organic growth for the trailing twelve months was some 31%.
One point I did note from the Interim report is the fact that the number of visitor sessions increased by 49% to 5.3bn (3.5bn) for the trailing twelve months to end June.
That reflects the continual integration with new networks, combined with new verticals and geographies.
The revenue per thousand sessions at $100 outperforms the market.
Analyst Views
At Zeus Capital, analysts Bob Liao and Carl Smith consider that the strong performance in the group’s first half growth was across all business segments, with the group gaining market share in each segment.
They noted that the group’s increased first half debt was due to the share buybacks ($13.6m), the dividend payments ($3.6m) and the settlement of deferred contingent consideration from a previous acquisition ($15.2m).
If those three elements were not made, then the actual net debt would have fallen by an impressive $20.8m.
The analysts have estimates out for the current year to end December for $825.3m ($728.2m) revenues, with adjusted EBITDA of $91.8m ($86.0m), generating earnings of 21.3c per share (20.0c).
For next year they have sales of $868.9m, EBITDA of $97.3m and 25.1c per share earnings.
The 2025 year could see $921.2m revenues, $104.5m EBITDA and 27.3c earnings.
Latest analyst forecasts are within a range of $783m and $834m for FY23 revenue and $91m and $98m for FY23 adjusted EBITDA.
Berenberg have a Price Objective of 250p on the group’s shares, while the highest analyst view was for 350p.
My View – A Totally Under-Rated Money Machine
As I have said so many times before, this group really is a veritable money machine.
The growth in its annual recurring revenue, running at 99%, is magnificent and must not be ignored – in fact, I believe that it is what will underwrite its substantial organic growth in the years to come.
In due course, following completion of the current share buyback programme, I would expect to see the group steadily increase its dividend payments, its maiden payment of 1p a share was made in June.
The group will be holding a Capital Markets Day to celebrate its tenth anniversary since its 2013 IPO, on Monday 4th September.
The next Corporate event after that will be the Q3 results due in October.
Price-to-earnings of 7 times is ridiculously low for such an advanced technology group that is generating so much cash, literally 24 hours a day, 365 days a year.
I repeat that I now see the groups shares, now 131.20p, rising gradually back above the 160p level before slowly scaling over 200p within the next year or so.
(Profile 12.07.21 @ 89p set a Target Price of 110p*)
(Asterisk * denotes that Target Price has been achieved since Profile publication)