Join our community of smart investors

CentralNic seemingly 'immune' to advertising recession

The company has continued to grow at pace despite issues in the wider market
August 30, 2022
  • Revenue almost doubled since last year
  • Cash conversion remains above 100 per cent

CentralNic’s (CNIC) business model has so far shown no vulnerabilities to the wider downturn in the online advertising market. The company generates three-quarters of its revenue from online marketing but said the segment “proved entirely immune to any adverse signals from the market”. Clearly this was true in the reported period given organic revenue increased by 98 per cent.

This rate of growth is surprising given the weaker numbers coming out of the larger players in the sector such as Facebook and Google. Management reminded us that CentralNic isn’t impacted by the changes in third-party privacy rules – which is good for their business model and may channel more advertising budgets towards them. On top of that, the relatively small size of CentralNic means it can keep growing in a shrinking market as long as it takes more of the market share.

As it is a platform business, increased scale will lead to improved margins. The number of visitor sessions increased by 82 per cent to 2bn compared with the prior half year. Revenue per visitor session also jumped 87 per cent, implying it is getting more advertising click-throughs from each of them. This contributed to the cash profit (Ebitda) margin expanding from 36 per cent to 47 per cent.

Broker Zeus thinks the growth prospects are undervalued. Zeus has it trading on a 2023 PE forecast of eight and a free cash flow yield of 12.4 per cent. Given the organic growth of over 60 per cent this looks like a bargain.

The question is whether CentralNic will remain “entirely immune” as the recession bites. However, even if growth slows, with its current free cash flow yield it will remain good value. Buy.   

Last IC View: Buy, 124p, 28 Feb 2022

CENTRALNIC (CNIC)   
ORD PRICE:126pMARKET VALUE:£364mn
TOUCH:126-127p12-MONTH HIGH:154pLOW: 97p
DIVIDEND YIELD:nilPE RATIO:60
NET ASSET VALUE:58ȼ*NET DEBT:32%
Half-year to 30 JunTurnover ($mn)Pre-tax profit ($mn)Earnings per share (ȼ)Dividend per share (ȼ)
2021174-2.20-1.41nil
202233515.82.61nil
% change+93---
Ex-div:-   
Payment:-   
£1 = $1.17. *Includes intangible assets of $318mn, or 110ȼ a share