CentralNic doubles sales again as demand and acquisition pipeline remain healthy

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What CentralNic does

CentralNic Group PLC (LON:CNIC) is a provider of registry services for internet domains, a string of characters (e.g. ‘.com’, ‘.net’, or ‘.gov’) used to identify administrative authority or control of different websites online.

Headquartered in London but also with offices in New York, Dubai and Los Angeles and account executives in Hong Kong, Abu Dhabi and Melbourne, the group operates its own proprietary registry engine that uses in-house IT systems to distribute its portfolio of domains across a network of 1,500 registrars, such as domain retailer GoDaddy.

The firm also owns domain name technology firm KeyDrive, which develops and operates software platforms used for selling subscription-based tools for businesses to operate online, including domain names, hosting, email, domain portfolio management and online advertising services.

Four acquisitions were made in the second half of 2019, KeyDrive, Hexonet, TPP Worldwide and Team Internet.

In September 2020, the group agreed the US$36mln acquisition of two more, Zeropark and Voluum, in a deal funded by a GBP30mln capital raise that is expected to grow CentralNic’s monetisation business and be immediately earnings enhancing.

How it’s doing

For the first six months of 2020, CentralNic more than doubled revenues to US$111.3mln, with underlying profits (EBITDA) up 64% year-on-year to US$15.1mln.

The performance was said to show the resilience of the business during the pandemic, with “healthy demand” reported for its two largest service lines, wholesale domains and monetisation.

The group also said it expected solid cash generation to continue, reducing net debt over time, and that its full-year performance is expected to be in line with its expectations.

Net debt stood at US$76.4mln, including cash of US$27.6mln, compared to US$6.0mln a year earlier after bond issuances in July and December 2019 to fund the earnings-accretive acquisitions.

What the boss says

“We are delighted that Zeropark and Voluum platforms and technology, expert staff and business relationships are becoming part of CentralNic, boosting not only our recurring revenues and profits, but also our market share and competitiveness. Added to our existing capabilities, the acquisition makes us a clear global leader, combining two of the most technically advanced monetisation platforms in the domain name industry, and the formidable teams that built and ran them”, said chief executive Ben Crawford alongside the September acquisitions.

“In the first half of 2020 CentralNic’s revenue exceeded our full year performance in 2019. These outstanding results not only demonstrate that CentralNic can source and complete transformative acquisitions, but that it can also integrate them successfully while delivering record organic growth. Moreover, as we scale up rapidly, the underlying qualities of high recurring revenues and excellent cash conversion become increasingly meaningful,” Crawford said in July.

Inflexion points

  • In March, the group hailed a turnaround of its Team Internet business, which it acquired at the end of 2019, which recorded revenue of US$74.0mln and adjusted underlying earnings (EBITDA) of US$12.3mln between 1 January 2019 through to 24 December 2019 compared to revenue of US$66.7mln and EBITDA of US$10.6mln in the 12 months to 30 June 2019
  • Acquisitions have been flowing and more seem likely
  • KeyDrive had led to a “significant improvement” in the quality of company earnings

Executive interview

What the analyst says

Following a capital markets event in June, analysts at Edison forecast CentralNic revenue to almost double this year to US$203mln and to rise again to US$214mln in 2021, while profits are tipped to reach US$18.9mln on a normalised basis this year and US$23.4mln a year later.

“CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further,” the research note said.

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