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CentralNic earnings growth soars as it expands services

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CentralNic, LON:CNIC, the AIM-listed IT company operating in digital advertising and domain name management, published its unaudited financial results for the nine months ending 30th September 2022.

The company reported revenue had increased by 88% to USD526.7m (GBP442.1m), against USD280.6m for the nine months to end-September 2021. Of that organic growth had increased by 66% and gross profit was up 53% to USD128.3m.

Michael Riedl, CentralNic’s chief financial officer said on a call yesterday (22nd November): “We have already exceeded our FY21 [figures], by 3Q22.”

Adjusted EBITDA increased 100% to 62m and operating profit came in at USD35.1m – 440% more than the USD6.5m reported at end-September 2021. Net debt was reduced by 22% to 63.4m versus USD81.4m on 31st December 2021.

Ben Crawford, the company’s chief executive said on the call: “If we look at the same nine months from last year, our EBITDA accounted for 37% of net revenue. Fast forward to today, and our EBITDA represents 48% of net revenue – moving inexorably towards that attractive 50% margin.”

The significant change during the period in terms of CentralNic’s financing was the refinancing of its 2023 EUR126m 7% Norwegian-listed bond, which was replaced with a USD150m dollar-denominated syndicated loan at 3.45%, maturing in 2026, with a USD100m accordion option and the option to push maturity out by one additional year.

Riedl said: “We can’t imagine more difficult financial markets than what we are seeing now […] our bond would have matured in July 2023, however with this refinancing the maturity has now been pushed out to October 2026 and we have agreed a one-year extension.”

He added: “If 2026 is also a difficult year we can push maturity out to 2027. We also converted our debt to [US] dollars from Euro – given most of our revenues are in dollars, by doing this we can avoid any FX issues.”

The CFO added that with the accordion option the company was now able to access further financing in the debt markets and wouldn’t need recourse to shareholder funds, and by securing a loan, had removed any covenant penalties on early repayment, so if CentralNic had spare funds, it could repay early without any financial penalties.

The company also completed an oversubscribed GBP42m equity raise on 28th February 2022.

CentralNic growing organically and by acquisition

As previously reported CentralNic focuses on digital advertising and domain name management, in addition to associated products and services, including web hosting and domain parking. The firm, founded at the beginning of the century by Stephen Dyer, aims to enable the global online economy to realise its full potential by providing the world’s most popular platforms and connecting customers with the tools to achieve their online aspirations.

The company has grown both organically and by acquisition, buying five businesses this year. In March, CentralNic acquired  VGL, a leading product review website publisher, in March 2022 for an enterprise value of EUR60m and followed this up with the USD11.2m acquisition of M.A Aporia. Post-period CentralNic bought Intellectual Property Management Company for USD7.3m.

The company makes its money from two divisions: Online Presence – the provision of digital tools for website and online presence management, and; Online Marketing – search traffic capture and distribution.

The online presence arm of the business is a subscription-based service with recurring revenues. Crawford said: “Every year all our customers have to pay us a fee. If they don’t pay us, service quotas grab their domain, their websites don’t work, email doesn’t work and so on; so there is an extremely predictable revenue stream that comes from this [business] arm – they are also incredibly sticky.”

Crawford claimed that in the website services sector only 2% of customers switch from one supply to another every year, because of switch risk costs, and complexity.

“There are additional opportunities for more acquisitions, to build this [division] into an even greater global business,” said Crawford. “We’re a software company, but in 2019 we decided to diversify into the online marketing area.”


Expanding services

And this is where CentraNic are most excited as to the business’ prospects. “We can sell you all the tools that you need to get online; but through the online marketing business, we can help you to get customers,” said Crawford.

The company has made a series of acquisitions of companies that “sell traffic.”

“For example,” said Crawford, “we bought a company that was an Amazon NASDAQ:AMZN partner, and Amazon wants people to go there and buy products and services from them, and they pay us for the traffic when people go there to buy something.”

The company has also made other acquisitions that give them access to Google Ads and a range of advertising agencies. “We now have three massive customers – Google Ads, Amazon and the ads agencies – all wanting to buy traffic from us, which makes us a very robust company with plenty of options for people that want to buy traffic.”

The company finds traffic organically – through websites that internet users know, or can find through a Google search. This accounts for 20% of traffic, “the rest we buy,” said Crawford.

The company is primarily a software company but self-identifies as a publisher. Crawford explained: “…We’re a publishing company, but unlike traditional publishers like the Daily Mail, which employs a few technical people, and scores of journalists, editors, illustrators, and photographers – we don’t bother with that. We have a load of techies and use automation to build millions of websites and each one of those websites are designed to have loads of ads.” The company captures that traffic.

Revenues on two fronts

CentralNic is attacking the market on two fronts. The Online Presence market is about USD7bn annually, said Crawford, with growth rates of 3% a year. The added value area, such as website building, email and Office 365 adds another USD53bn with a growth rate of 2% to 6% a year.

“However, the giant here – the main business of the internet – is Online Marketing and that’s a USD616bn marketplace growing at 15% p.a. We used to be only in the Online Presence market, and that grew our business by about 4% organically, but this has been completely outstripped by the massive success of our online marketing business, which grew by 100% over the last 12-months to more than USD532m in revenues,” Crawford said.

With two partners [Amazon and Google Ads] collectively spending USD100bn a year on traffic acquisition – a market growing at 15% a year – and we have 0.4% of this spend, clearly we can continue to grow the business by 100% a year for the next few years and still not have 1%. So with the demand for what we sell gigantic, our issue is not finding the customer with money, but finding the traffic to sell to them,” concluded Crawford.

The company opened trading today (23rd November) at 123p and had fallen to 117p by 12:00. The company has offered a -16.8% year-to-date return, with a -22.1% one-year return. Its shares have ranged between 106.5p and 150p over a 52-week period and has a market capitalization of GBP355.1m.

With ongoing subscriptions paid by every customer once-a-year for every product in its range, CentralNic has a stable, sticky revenue base that should be immune to economic downturns. But with its Online Marketing division, every client pays every time they make a transaction and win a customer, and as opposed to once-a-year, this can be multiple times a day in a much bigger market with significant growth potential making CentralNic one to watch.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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