Marketing and M&A driving growth at CentralNic

CentralNic’s (CNIC) strategy of investment during the pandemic has delivered strong results. The highly acquisitive advertising and domain business delivered adjusted cash profit growth of 57 per cent taking it to $46.3mn (£34.5mn). However, due to a £42mn share placing at 120p – 9 per cent below its share price at the time – the share price dropped 6 per cent on the morning of the announcement.

The cash from the placing was used to acquire German online marketing business VGL Verlagsgesellschaft for $75mn. The acquired company provides comparison content and reviews and is expected to be immediately accretive before any synergies are realised.

CentralNic started out buying and selling domain names. However, in the last three years it has focused on marketing, using its visibility of domains to match buyers and sellers of advertising. Marketing now makes up 64 per cent of total revenue, up from 47 per cent last year.

The strength of its marketing business is that it doesn’t rely on tracking people’s data so there isn’t a risk of losing business because of the third-party data changes made at Apple and Google. Increasing economic concerns over inflation and the conflict in Ukraine mean total global advertising spend could fall. Historically, GDP and advertising spend have been closely correlated.

However, management thinks that digital advertising is so crucial to businesses nowadays that this relationship is no longer as strong. FactSet broker consensus 2023 EPS is 10.3p, a 20 per cent increase. This gives it a very affordable 2023 price/earnings (PE) ratio of 12.1 – especially compared with US rival GoDaddy, which currently trades on a 2023 PE ratio of 30.2. Buy.