RE: Zeus Capital raise forecasts yet again30 Jan 2023 12:16
Here's Zeus Capital's new summary research issued today (since it's already been posted elsewhere):
"Strong, resilient growth
CentralNic issued another positive trading update, leading us to upgrade Adjusted EBITDA again, this time by 4% in both 2022 and 2023. The company continues to grow rapidly (60% organic revenue growth) and margins continue to expand, demonstrating resilience to a slowing economy and online marketing sector. We conservatively raise our 2023 forecasts due solely to base effects, leaving revenue growth at only 6%. As a result, we see the potential for CentralNic’s upgrade cycle to continue into 2023. The company’s low earnings multiples (5.7x EV/ 2023 EBITDA) do not reflect the company’s strong growth, expanding margins and cash generation.
2022 trading update
¨ CentralNic traded ahead of expectations in Q4 2022. Revenue for the full year is expected to be about $728m, ~3% ahead of our estimate of $710m. Adjusted EBITDA is expected to be at least $85m, over 4% ahead of our estimate of $82m. Net debt is expected to be about $57m, in line with our forecast of $51m after including the acquisition of a publishing network announced 19 December for $5.2m. Adjusted operating cash conversion was over 100%, implying continued strong cash conversion in Q4 2022. Adjusted operating cash conversion was 105% in the first three quarters of 2022.
¨ Continued high growth and margin expansion: The company grew by about 60% organically in 2022, compared to 66% in the twelve months to the end of September and 62% in the LTM to June 2022. Growth continued to be led by the Online Marketing division, which doubled in the twelve months to September. We estimate Adjusted EBITDA/Net revenue margin was over 48% in 2022, implying 49% margin in H2 2022, up from 47% in H1 2022 and 39% in 2021.
¨ Forecast upgrades: We conservatively raise our 2023 and 2024 forecasts solely due to base effects. Our revised forecasts leave considerable room for outperformance. We forecast 6% revenue growth in 2023 and 2024, down from c. 60% organic growth in 2022. Similarly, we forecast margins are broadly steady at 11.9% in both years. Our preferred measure of profitability, Adjusted EBITDA/ Net Revenue, rose to 47% in the first nine months of 2022 from 39% in 2021. We see the opportunity for multiple upgrades in 2023, continuing the trend of five EBITDA upgrades since the beginning of 2021.
¨ Underrated: CentralNic trades at only 5.7x 2023 EBITDA and 8.3x PE, at the bottom of its peer group range, despite having a FY22 FCFF yield of 13.0% and delivering strong growth and earnings outperformance."
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