CentralNic intends to pay dividend for first time

New CentralNic (CNIC) chief executive Michael Riedl has inherited a company in good health. Formerly chief financial officer, Riedl took over after previous chief executive Ben Crawford retired at the end of last year.

CentralNic buys and sells internet domain names, and this also positions it to broker digital advertising deals. Advertising is now the company’s main growth driver. Despite the wider downturn in the advertising industry, CentralNic reported that marketing revenue increased 120 per cent to $314mn (£260mn). The number of visitor sessions rose 77 per cent to 4.6bn and revenue per session was up 37 per cent.

The benefit of CentalNic’s marketing strategy is that it doesn’t rely on tracking, so is not threatened by Apple’s (US:APPL) privacy rules. As the company has visibility over its domains, it can use context to place ads. CentralNic relies on software to place the ads, so as its scale increases so does profitability. Operating profit increased 172 per cent to $33.6mn in the period. Meanwhile, the asset-light nature of the business means it can turn a lot of this profit into cash, with adjusted operating cash conversion at 110 per cent. With this much cash, the directors now “intend to propose” a dividend of 1p a share for the first time.

The market so far hasn’t seemed to recognise CentralNic’s value. FactSet broker consensus expects free cash flow to rise to $65.3mn in 2024, which would give an enticing free cash flow yield of 14 per cent. For comparison, rival GoDaddy (US:GDDY) in the US, admittedly a much larger business, has a 10.1 per cent 2024 cash flow yield. We stick to buy.

Last IC View: Buy, 126p, 30 Aug 2022