Meeting notes with CNIC's management: part 111 Mar 2022 07:31
Jack Brumby from Stockopedia, who holds CNIC shares, met with management a couple of days ago and made some useful notes - here they are:
"Jack’s section Centralnic (LON:CNIC)
Notes from meeting with management
I hold
No surprise that revenues are again up 71% to $410m as this is in keeping with a revenue CAGR of roughly 73% since IPO. But, importantly, a lot of this growth is now organic (39% according to the update, up from mid single digits a few years ago and 9% in FY20).
This follows years of significant work and investment into staff and systems, plus a centralised head office function that gives managers more freedom to grow their businesses. The other big factor is the impressive growth in online marketing. Today’s announcement marks the fourth acquisition here, one which significantly grows the scale of this segment.
Group adjusted EBITDA is up c60% and cash generation is up c50%. Operating profit is also up, so the revenue growth is dropping through to profits.
Online Presence – infrastructure online – is generally annual subscription products. Every company buys a suite of products amp; renews every year.
Online Marketing, however, sees CNIC paid every time the client wins a new customer, so the cadence can be many times every day. It’s also a far greater addressable market at c$400bn.
The company continues to be well positioned as Big Tech focuses on privacy.
Balance sheet
Net debt to EBITDA ratio is 1.6x and needs to be under 2.5, so CNIC is comfortable at these levels. It’s recurring cash generation gives interest cover of c4.5x and, given the nature of the company, perhaps these are the most important metrics against which to gauge debt.
This is a very asset light business. There’s just no need for factories, inventory, etc. hence the lack of tangible assets.
Intangibles is a large line item but this all comes from acquisitions. When you acquire a business, you allocate against assets, and when there’s no tangibles then it is classified as goodwill. Cash and receivables are a big part of the business, and the group’s cash generation is a more important point to consider.
Cash is generated fairly consistently – there are no big swings from, say, a key trading period that a retailer might have, so the figures we get today are a good indicator of the scale of the enterprise. Cash generation has been above adjusted EBITDA every year since IPO.
Customers must prepay amp; CNIC receives credit from suppliers – a favourable dynamic that leads to strong cash generation.
EPS
It’s fair to adjust the EPS as there’s a big chunk of amortisation relating entirely to intangible assets, so it’s not something that impacts on cash and is primarily a function of acquisitions. If the company stopped making acquisitions, these non-cash costs would fall away.
etc"
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