CentralNic Group PLC (LON:CNIC) business is resilient in the current environment. The company has mostly repeatable revenues and sells mission-critical products, diversified across many customers and countries. Market growth is robust, benefiting from the recent surge in online activity and regulated price increases. Competitively, the company is well positioned, dominating its core markets. Financially, the company has adequate financing and has not experienced any increase in late payments. CentralNic’s resilience is reflected in a confident trading update this morning.
- CV-19 update: The company stated that it has not seen an interruption in its operations and trading is in line with expectations. CentralNic expects to remain resilient and emphasised that it offers essential internet infrastructure and that its customers are on rolling subscription contracts.
- Resilient revenue model and products: About two-thirds of CentralNic’s revenues are subscription-based and the rest is broadly diversified and highly reliable. In addition, the company’s services are unlikely to be cut from budgets. Domain name registrations support critical services such as email and Office365, while their cost to enterprises is very low.
- Robust markets: Domain name demand is dependent on internet traffic and online commerce, which are surging since most consumers are now isolated to at-home activities, remote working and ecommerce. In addition, CentralNic is likely to benefit from regulated price increases. Dot com domain name prices are likely to start rising by 7% per annum after Verisign, which oversees .com domains, reached a deal with the U.S. Department of Commerce to raise prices.
- Strong competitive positions: CentralNic’s Reseller business is ranked No. 2 amongst wholesale registrars (40%+ of sales), Team Internet dominates the global domain name monetisation market (33%+ of sales) and CentralNic is a significant player in the Corporate and SME markets (20%+ of sales).
- Solid financial position: CentralNic is in a solid financial position with adequate financing and creditworthy customers. CentralNic increased leverage to <3x net debt to EBITDA to finance the acquisition of Team Internet. We estimate CentralNic has 4.5x interest cover and refinancing is not required until 2023. In terms of working capital financing, the company believes its €5m revolving credit facility and high (~100%) cash conversion give it ample liquidity.
- Strengthen management: Last week, the company announced several appointments that should increase its focus, accountability and growth potential. The changes should also provide a solid foundation for CentralNic to add shareholder value as the leading consolidator of the domain name market.