CentralNic Group PLC (LON:CNIC) 2019 results demonstrated consistent organic growth, strong delivery on acquisitions and high cash conversion. We believe there is upside to 2020 expectations since our forecasts are below Q1 run rates, historic growth trends and acquisition synergy targets. In addition, CentralNic appears well positioned to complete more earnings accretive acquisitions. The company is developing a track record of successful execution while the current environment makes more acquisition opportunities available.
2019 results and resilient outlook: CentralNic stated that all divisions showed organic growth through both new client wins and increased business from existing customers. Results were in line with our estimates ($109m revenue, $18m EBITDA, 104% cash conversion, $75m Net debt). CentralNic is well supported by 92% recurring revenues (2019), low customer concentration (top customer is less than 10% of revenue) and high visibility (c.80% of revenues derived from recurring annual fees that were agreed in prior years).
Upside to 2020 estimates: CentralNic released a Q1 update, where annualised revenue and Adjusted EBITDA are respectively 10% and 3% above our 2020 forecasts. Second, our forecasts factor in only 4% revenue growth versus 6% historic organic growth. Third, we do not factor in further acquisition synergies and model no EBITDA margin improvement on a pro forma basis. In contrast, the company has already achieved $1m in synergies from 2018 acquisitions and expects to realise synergies from 2019 acquisitions during the remainder of 2020. We conservatively maintain our 2020 and 2021 Revenue and Adjusted EBITDA estimates.
Acquisition track record: CentralNic is developing a strong track record of identifying attractive acquisitions, integrating them and realising synergies. We calculate that the company has already realised synergies in 2019 equal to 15% of the EBITDA of the acquired companies pre-acquisition. At the same time, we believe more acquisition opportunities may open to CentraNic’s proven acquisition approach, as small independent peers struggle in the current crisis. As a result, the company has chosen to defer a maiden dividend to preserve capital for acquisitions.
Attractive valuation: We believe that as CentralNic Group increase in size and builds a track record of earnings outperformance and successful acquisition integration, its multiples will rise to approach its peers. Shares trade at only 9x EV/ 2020 EBITDA, a sharp discount to peers, GoDaddy and Tucows, which trade at 18x and 13x EV/ 2020 EBITDA, respectively.
