This week has seen two of my most highly favoured companies reporting good news to their shareholders.
What is more both of them issued strong first half-year statements, leading to guidance of even stronger second halves.
The shares of the two companies concerned stand out to me in offering substantial value and considerable upside.
Both companies have grown strongly through organic impetus and exceptional synergistic acquisitions over the last few years.
The companies are both steeped in the internet sector, one in cyber security and the other in domain creation.
And both are driven by incredible rates of annual recurring revenues.
CentralNic Group – 62% growth
On Monday morning CentralNic (LON:CNIC) issued a Trading Update for the first half to end June.
The group provides domain name services worldwide.
It operates through Online Presence and Online Marketing segments.
The company’s Online Presence segment provides tools for businesses to go online, such as reseller, registry operator, registry service provider, retail, and computer software channels, as well as strategic consultancy and related services.
Its Online Marketing segment offers advertising placement services for domain name owners, content website operators, and e-commerce website operators.
It also provides social marketing, search engine marketing advertising, and display advertising services.
As well as selling domain names to registrants.
Trading Update showing strong demand
Monday’s Trading Update showed an organic growth rate of 62%, spurred on by the growing strength of demand in the second quarter.
Its first half revenues rose 92% to $335m ($174m), while its EBITDA was 85% ahead at $38m ($20.5m).
That outperformance was largely due to the growth of the group’s Online Marketing Segment, which was driven by increased demand for its privacy-safe online customer acquisition services.
Ben Crawford, CEO, stated that:
“CentralNic has enjoyed a strong first half of the year with year-on-year organic growth now reaching a record 62%, a further improvement over the 53% reported for the twelve-month period ending 31 March 2022.
CentralNic continues to deliver sustainable growth thanks to our privacy safe solutions and the enormous scale of the market opportunities we are addressing.”
Commenting upon the group’s outlook the £375m market capitalised company reported that
“While the Directors remain vigilant concerning the current global macro-economic environment, the Board has confidence that the group will meet at least the upper end ofcurrent market expectations for the FY22 financial year.”
Brokers View – 221p increased valuation figure
Analyst Bob Liao, at the group’s NOMAD and joint broker Zeus Capital, has increased full year estimates now out at revenues of $617.1m ($410.5m), adjusted pre-tax profits of $57.2m and earnings of 17.4c per share.
For the December 2023 figures he has $654.1m sales, $63.9m profits and 18.8c of earnings per share.
On the basis of this week’s upgrades, he has lifted his valuation for CentralNic from 195p to 221p a share.
The shares closed last night at just 130p, at which level in my view they are cheap and very soon are headed back well over their previous 154p High.
That step up in price may well occur ahead of the Interims announcement on Tuesday 30 August.
Even then they have still further to climb in price.
(Profile 12.07.21 @ 89p set a Target Price of 110p*)
Kape Technologies – the good news keeps on coming
Yesterday morning Kape Technologies (LON:KAPE), the digital security and privacy software business, issued its Trading Update to end June.
The company is a leading ‘privacy-first’ digital security software provider to consumers. Through its range of privacy and security products, it focusses on protecting consumers and their personal data as they go about their daily digital lives.
It develops and distributes digital products in the online security space.
It operates through Digital Security, Digital Content, and Digital Privacy segments.
The company offers CyberGhost, ZenMate, Express, and private internet access that provide cybersecurity SaaS with a focus on providing of virtual private network solutions.
It provides Intego, a cyber security SaaS provider that focuses on the provision of malware protection.
In addition, the company offers software development; market research; consulting; and professional services.
Trading Update – with an 88.6% ARR
The first half witnessed and incredibly strong start to the current year, with sales expected to be some $301.6m ($95.5m), with over 88.6% annual recurring revenues.
Kape experienced strong organic growth across the business, with demand for privacy and security products on the rise.
Ido Erlichman, CEO, commented that:
“Kape has made a strong start to 2022, delivering on our organic growth ambitions and, more importantly, servicing c.7m customers who choose to use our products.
This has been our strongest H1 to-date, having delivered six consecutive years of growth and, with the integration of ExpressVPN progressing to plan, we are ideally placed to further capitalise on this rapidly growing market.”
Broker’s View – 405p on a 12-month view
Caspar Erskine, analyst at Singer Capital Markets, rates the group’s shares as a Buy, with a price aim of 405p on a 12-month view.
His full year estimate is for $618.5m revenues ($230.7m) a more than doubled adjusted pre-tax profit of $159.1m ($72.8m) and earnings of 39.2c (29.8c).
For 2023 he sees $690.7m sales, $181.7m profits, and 44.6c of earnings per share.
I just love this company, even though it is now clearly outside of my normal ‘Small Cap’ market value range.
To me, just like with CentralNic, it is an arithmetic and highly scalable situation.
The growth in its ARR is so appealing, while the cash generation it creates is fantastic.
The group’s shares went up to 690p on the announcement late last year of the Express VPN acquisition. It may take a while to get back up there again but I am still firm in my prediction of 600p.
They closed last night at 287.5p – a very strong hold.
(Profile 21.12.20 @ 172p set a Target Price of 215p*)
(Profile 01.11.21 @ 402.5p set a Target Price of 600p)