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Centralnic Group Plc

CentralNic Group plc Accretive bolt-on acquisition of GlobeHosting Inc. – Zeus Upgrade Forecast

CentralNic Group (LON:CNIC) has announced the acquisition of GlobeHosting Inc. for a total consideration of €2.6m to be funded from existing cash resources. This bolt-on acquisition is hot on the heels of the $55.0m transformational KeyDrive deal completed in July and expands the business further into key growth markets delivering recurring revenues. GlobeHosting generated revenues of €0.8m and EBITDA of €0.4m in the 12 months to 31 July 2018 implying a 6.2x EBITDA multiple. The deal will be accretive from FY19 onwards. The total consideration comprises an initial consideration of €1.5m, coupled with deferred payments of €0.6m and €0.5m on the first and second anniversaries of completion.

A complementary acquisition that boosts recurring revenues. GlobeHosting is a recurring revenue and high margin business. It operates as a registrar and retailer of domain names and SSL certificates as well as a hosting provider servicing principally the Romanian and Brazilian markets. The business is complementary to CentralNic’s Retail and Reseller divisions that were boosted via the KeyDrive acquisition, and integration into the Group is expected to be very straightforward. GlobeHosting’s CTO will remain with the business in addition to the small customer / tech support team based in Romania.

Growth opportunities under CentralNic ownership. Romania is an attractive growth market for the Retail business because recent changes with regards to domain ownership have required domains to be renewed as per the rest of the world, instead of being bought and owned outright. GlobeHosting has a strong retail presence in Romania and is well positioned in terms of SEO/Google optimisation to benefit from both the changes and expected growth in the market. Currently only 60% of Romania’s 20m population uses the internet and penetration grew 4% in 2017. There are other synergies that can be realised, for example KeyDrive can procure SSL certificates at a lower price, in addition to the upselling capabilities and economies of scale that CentralNic will provide.

Upgrades to FY19 and FY20. Our FY19 and FY20 adj. EBITDA estimates increase by £0.3m and £0.4m respectively to £12.8m (£12.5m) and £13.5m (£13.1m), implying upgrades of c.3% with margin increasing 30bps. Our FD EPS also increases to 4.2p (4.0p) and 4.6p (4.4p).

Year-end Dec FY19
New
FY19
Old
%
Chg
FY20
New
FY20
Old
%
Chg
Adj. EBITDA (£m) 12.8 12.5 2.7 13.5 13.1 2.9
Margin (%) 16.8 16.5 +30bps 16.6 16.3 +30bps
Adj. ful dil EPS (p) 4.2 4.0 3.0 4.6 4.4 3.1

Source: Zeus Capital estimates

Zeus Capital Valuation. To December 2019, CentralNic is trading on a P/E of 12.5x (fully diluted) falling to 11.4x and EV/EBITDA of 7.9x falling to 7.2x which is undemanding given the high quality of earnings. Our estimate of fair value, based on 20% discount to the average of the global domain industry peers and similar UK tech companies, implies a share price of 105p.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.