Ben Richardson, CEO at SulNOx, confident they can cost-effectively decarbonise commercial shipping. Watch the video here.
Here we go people....
https://www.lsegissuerservices.com/spark/CentralNicGroup/events/07d90b03-4ccf-4bd5-bf10-c69d4498159c
Presumably they will be a bunch of presentations coming Monday that Management will be delivering to instos and analysts. Should provide incremental colour about the business. Liquidity in the stock is atrocious which will prevent many instos buying in. No simple solution there. Management just needs to keep executing on their strategy to grow their large market leading businesses and diversify their exposure to the market leading online social media and search platforms. Maybe they could also accalerate the share buyback if the shareprice continues to be unresponsive
I thought the presentation accompanying the results was more positive than I was anticipating. They clearly have a range of products and contracts which are either implemented and not producing material revenue yet, or in the pipeline to be implemented. This gives me confidence around organic growth over the next one to three years
Despite Michael's somewhat stilted presentation style, they are getting better at explaining what CentralNIC is and does in a way that the investor community can more easily understand. This is being helped through their focus on their larger market leading businesses in their portfolio. They still have a couple of meaty discontinuity and tail risks to navigate but I was quietly re-assured. Michael should get a coach to help him with the communication side of things.
He was comparing the saving per year of each dollar of debt bought back versus each dollar of equity bought back. He was just making the point that its far more accretive to buy back shares then retire debt based on the effective annual servicing costs of CNIC's debt versus its equity
I have done similar analysis of the pro forma adjustments for the various acquisitions etc, but where I have come too in my head is that you just need to look at the last four quarters, of gross profit, and EBITDA to realise this is not growing anywhere like at the rates highlighted by management
Gross profit: 46m; 49m; 46m; 45m
EBITDA: 23m; 24m; 21m; 23m
Maybe it’s growing +10% organically; more likely it’s flat; maybe it declined in the current quarter. My point is it’s nothing like +30%, unless you include the contribution from acquisitions in periods prior to when they were acquired, which definitionally is a bit iffy.
If revenue is growing organically at 30% then EBITDA should have been growing much faster given the ‘operating leverage’ we are meant to benefit from. The last quarters haven’t really indicated much evidence of that. That’s not too say it doesn’t benefit from it, or that it won’t in the future, I’m just highlighting another inconsistency with the supposed investment case, suggesting perhaps management’s marketing spin has been running a bit ahead of the evidence for a couple of quarters, which is the ‘disappointment’
What I meant by the ‘organic growth disappointment’ is the fact that the information value of the Company’s preferred definition of organic growth is quite low when looking at any quarter and not necessarily reflective of actual current organic growth. So for me at least, it was a disappointment to find out that organic growth has been effectively flat, despite the Company saying it has been 30%+. This was apparent last quarter as well, when growth was flat
Agreed that the FCF generation still looks amazing, and the drop off in cash conversion last quarter looks like ordinary quarterly volatility.
The combination of the FCF generation and absolute valuation level vs run-rate FCF still suggest that CNIC is extremely cheap, and provides a good amount of ‘margin of safely’ to absorb the organic growth disappointment.
However, the growth disappointment is ‘new info’ which creates a headwind which is slowing/stalling the share price re-rating. Over the medium term the attractive FCF and entry valuation should drive a significant return for investors, with upside if it can demonstrate track record of good cross cycle organic growth with resiliency to advertising market downturns
I think some people here risk creating a self reinforcing echo chamber. The most interesting and often the most valuable opinions are the ones which are contrary to one’s own as they provide an opportunity to test your underlying investment thesis and potentially uncover more information to refine it further and confirm it’s still valid.
Let’s be honest here. These results were not great: - The company has effectively posted flat quarterlies for the last four quarters on a gross profit and EBITDA basis.
- The Companies preferred way of calculating organic revenue growth using TTM pro forma company full current perimeter obscures and dampens both the real underlying level of organic growth as well as the most current information about run-rate organic growth rate.
It’s still very cheap, and flat organic growth may actually represent ‘resiliency’ given wider advertising macro spend trends, but relative to where we were twelve months ago, CentralNICs has significantly decelerated and certainly underperformed my expectations of where I thought it would get too by here, and the absence of an inflection point in the rate of organic growth (ie no evidence of a re-acceleration) is a disappointment
The fact the Management team hasn’t really acknowledged the stalling of organic growth and still emphasises organic growth of 30%+ is also very worrying, as it suggests they are ‘spinning’ the performance and ‘glossing over’ a significant change in the level of company underlying performance
Does the company make their quarterly calls with analysts available to other shareholders somewhere?
Good for management to be striking their performance hurdles off the current depressed share price!
One way of the other - the next three to six months - should provide evidence if their strategy to expand adjacently organically is likely to be successful. The current share price is reflecting a massive amount of uncertainty over the sustainability of the company's current earnings, yet alone, pricing in any of the possible upside from these initiatives. It could be that this gets even cheaper if these growth options start contributing to the bottom line.
Out of interest, did anyone listen to the AGM and hear what colour they gave on the new Bing contract with Microsoft? Eg did they quantify upside potential? Or provide any info around which markets it’s relevant for, or how much additional traffic they anticipate to be able to monetise etc? I guess, I’m trying to get feel how consequential they think this might be
Also, have they outlined timing for their material new product launches this year (like their English or French language versions of Tonic etc ?)
I assume your estimate of organic growth is for Q1 this year vs Q1 last year? My fear is that even this is backward looking. If you look at run-rate seasonally adjusted revenues, I suspect the Company posted effectively 0% organic growth Q1 vs Q4 which could be a harbinger of an inflexion point where quarterly revenues may be due to decline for a period of time. Whilst its still cheap as chips based on multiples etc, the significant change in momentum is clearly a big disappointment and likely to be the driver of share price performance over the next couple of months until we see the Q2 numbers to see what trajectory this thing is on now. The consensus numbers are hard to interpret, other than to say that they were sand bagged to such an extent that merely meeting them represents a disappointment vs. buy side expectations.
I would be happy with a big buyback along side the year end numbers which showed positive QoQ organic growth, or a take over offer at a 100%+ premium
I guess this means that “run-rate” organic growth rate (ie the ‘latest’ organic growth rate, in the last quarter only, or as at the end of the last quarter) must be around 15% to 20%, which means ‘run-rate’ organic growth has fallen off a cliff vs. previous quarters, and a lot of the growth making up the 45% LTM organic growth rate must be from organic growth which occurred in previous quarters of the LTM period. This implies a material slowing of the core business and the share price reaction is not surprising
Riddle me this Batman: how does revenue grow 25% vs pcp when organic revenue growth is 45% and the firm has completed acquisitions over the last year
The problem with the CEO reconfirming "market expectations" is that the analyst forecasts are far too conservative (reflecting their conversations with management) to the extent that they are not a credible basis for forecasting the current years financial performance, and as such, the guidance reconfirmation is meaningless as a share price driver. For example, if you strip out the step-up in revenue expected from acquisitions closed in the last year (i.e. due to having a full year of ownership) and from acquisitions closed in the current year, the implied organic growth rate that the analysts are assuming is pretty much zero. i.e. the company is already meeting their forecasts without requiring any revenue growth.
I would be extremely concerned as a shareholder if the organic growth rate went to zero from 60% in one year. The analysts should use their judgment based off their discussion with management, their independent research, and the current momentum of the business to come up with credible forecasts for the organic revenue growth. Even using the Company's internal budgeted organic growth rate (which is in "high single digits") lacks credibility given the current run-rate of growth and managements record of sand-bagging budgets so that they can be exceeded.
I guess I'm making the point that the market (and share price) would probably benefit from management communicating more realistic guidance to analysts which actually reflects "market expectations" rather than try and create easy to exceed, sand-bagged, earnings beats for the purpose of maintaining their record of exceeding analyst forecasts at each earnings release
Agreed. FCF gives the value of the cash produced in a period available to equity holders (either returned as dividends) or used for debt repayment which will result in a £ fpr £ increase in equity value.
But don’t forget the two other ‘fundamental’ drivers of CentralNICs share price:
(1) the growth rate of FCF over the period (or EBITDA growth as a proxy) and
(2) the ‘pull to par’ when (hopefully) the share price re-rates to a more reasonable valuation multiple over the medium term
Doing the math for centralNCS:
One year share rice appreciation = FCF yield (14%) + FCF growth over year (range from 10% (lower band based on company’s conservative internal budgets used to set management bonuses) to 60% (if it repeats last years organic growth) - choosing something in the middle, say 25% which represents a significant slowdown vs what they are growing at now, but above the sandbagged budget ) + in the year re-rating (which is put in a range of 0% to 200% but say 0% as it feels like we will be waiting a bit longer for the market to see it’s potential)
So pretty easy to see this thing returning 25-75% (mid point around 40%) over the next twelve months, even without any re-rating of valuation multiples
Guys, how have people concluded that the loss of confidence in Ben by the Board was due to Ben's fixation with the M&A strategy? The explanation given to Brokers about Ben wanting to spend time with family sounds like an attempt by Mgmt/the Board to reassure investors that CNIC's isnt a burning platform. That would be reasonable for a normal CEO transition, but not one where the CEO is replaced effective immediate effect.
Could it not be due to other factors? Board loss of confidence in a CEO is most likely due to hiding/concealing of information from the Board. Given the guidance and share buyback announcement at the same time as the CEO change, I'm guessing its not due to a hidden bomb on the balance sheet, or operational issue, but probably Ben having unauthorized conversations with some potentially interested acquirers of CNIC... He after all, would have the most to gain from a take private transaction.
The risk of a blow up in one of its subsidiaries/recent acquisitions would be more serious, but paraphs less likely
I do really like this Company. It certainly appears to be shaping up to make itself into something quite special, but it’s on a journey, rather than being the finished article just yet.
One thing to comment on is that the forecasts that the Company have guided the brokers to are ridiculously conservative. From recollection I think the business is already run-rating more then next years forecast EBITDA in one of the research notes I read. So lots of sand bagging in the broker numbers (and future earnings upgrades), but I’m sure the insto buy siders are on top of this
The biggest question mark on value in my mind is what multiple should you put on the Online Monetisation business given it’s super normal growth but also it’s Google customer concentration exposure? The implied multiple based off the current share price is ridiculously low if we apply a 9-12x multiple to the Online Presence segment
It’s shares also have a terrible liquidity problem which will prevent some investors looking at it, it’s also not helped being listed in the UK. probably would benefit from a top tier US technology focused corporate broker coming on bored who could get new instos warmed up ahead of its next equity raising which would diversify the register.
Taking a step back, its also quite complex to explain what it does exactly (especially online marketing ) and still suffers from the perception that it’s a bunch of sub scale businesses tacked together through m&a without any scale market leading businesses to focus buy-side analysts on. I think this is gradually changing overtime as they integrate the various m&a targets into their central tech platforms, which is improving business quality. Management also need to clearly articulate the mitigants to the Google customer issue, and get on with shrinking that exposure quickly (by growing revenue sources from other customers)
… suspect they have been hit by the worse then expected google result, especially the read across for outlook for online ad sales
I assure you I wasn’t intending to selectively present any evidence one way or another …
It’s not clear to me who is the gate keeper ‘owning’ the end-customer/eye-ball… if it’s an aggregator who is directing end user traffic to CNICs platforms for monetisation, then it strikes me that they could potentially direct this traffic to other competitor platforms for monetisation if they wanted to (eg if someone built a better monetisation engine) , or maybe they could even build their own monetisation engine for this traffic using their own software engineers … in this case it wouldn’t matter that their are 3-4m end customers…
the traffic generated by CNIC own sites (owned or managed) sold to 3rd party advertisers for monetisation intuitively feels lower risk…
im struggling to peel off the next layer of onion to understand how much concentration risk CNIC is really exposed to…
Keen to chat with anyone who’s done the deep dive on this and is open to sharing thoughts
The online presence business is highly diversified, but the online marketing division is not…
See note 6 of the Annual Report (pg70)…” one customer represents more than 10% of revenue amounting to USD 208m” (out of US 410m FY’21 revenues)…