CentralNic Group Plc* (CNIC LN) Interim Results and Initiation Note [73.0p]


25th September 2013 — CentralNic's interim results show significant growth in profitability for the period ended 30 June 2013. Gross profit for the first half was up 60% to £1.21m, EBITDA increased 64% to £0.76m and PBT increased 97.5% to £0.64m. The strong performance was driven by continued growth in revenue from the sale of new domain names as well as revenues from consulting services to new TLD applications, deferred revenues from prior periods and growth in billings from existing inventory. The company had cash balances of £0.82m at the year-end, however post IPO and fundraising, this currently sits at over £5.0m.

Highlights for the period include the successful launch of a new TLD, .PW (country code for Palau), for which CentralNic are the Registry Service Providers and distributors. There were over 250,000 .PW domains sold in the first seven months since launch in December 2012, making it the world's most successful TLD launch since 2011.

CentralNic also signed contracts to supply domain names to 40 new domain retailers, including leading Chinese registrars Eranet International, Nihand Networks and Shanghai Technology Information Development Co., and the world's largest domain name retailer, GoDaddy, which has 12 million customers and 55 million domains under management. The company now estimates that its distribution network of domain retailers now represents over 82% of the global market.

The agreement with GoDaddy was signed during the period, however, they only started selling domains post period-end in July, commencing with a targeted marketing campaign to re-launch the .LA domain in Los Angeles. This was successful and we anticipate additional domain launches with GoDaddy further down the line as new domains are launched.

Non-recurring consulting revenue boosted revenues in the period, including a cooperation agreement with GMO Registry, part of GMO Internet Group which is Japan's largest internet services provider with over 4.75m web infrastructure customers. The agreement includes on-going training, joint development, support and monitoring services relating to TLDs operated by GMO Registry.

CentralNic also completed and signed several contract negotiations to be the exclusive global distributor for .in.net and .africa.com. There was also successful renegotiation of its distribution contract for .LA, with CentralNic's revenue share increasing as a reward for introducing new retailers. A marketing fund to further increase sales of .LA domains has also been created, with potential new markets including China (where ‘la' is a popular exclamation word), Latin America, and Louisiana.

14 uncontested client applications for TLD's have passed ICANN's initial evaluation and collision risk assessment and are therefore guaranteed to be exclusively powered by CentralNic once they launch. In addition to this, there are 39 TLDs that have passed initial evaluation and remain candidates for CentralNic to distribute. Importantly, the process of approving new TLDs by ICANN is moving forward in-line with management expectations.

We note of interest the recent sale of ig.com, which sold for $4.7m in this year's biggest domain sale. CentralNic's portfolio of premium domain names includes what has been described as “the world's greatest two-letter .com collection”. CentralNic owns the dot com country codes for Europe, the USA, the United Kingdom, China, Russia, Germany, as well as a dozen other countries, adding to the argument that CentralNic should be regarded as an asset backed investment opportunity in global internet growth.

The successful fundraising, IPO and admission to AIM will enable the business to further accelerate growth, such as the development of the retailing business ‘TLD Registrar Solutions', with several initial clients signed during the period. The funds raised will also be used to further expand the high quality annuity style earnings model that will produce long-term revenue streams.

Analyst: John Wilson, john.wilson@zeuscapital.co.uk, 020 7533 7722

* Zeus Capital acts as NOMAD and broker to this company