CentralNIC Group set to pick up the pace

http://www.proactiveinvestors.co.uk/companies/news/68338/centralnic-group-set-to-pick-up-the-pace-68338.html

Proactive Investors

The first set of full-year results since listing in September revealed a rising top-line at CentralNic (LON:CNIC), with plenty of growth in the pipeline.

The Internet domain name registry and registry saw billings jump 15% in 2013 to £3.9mln, helping revenues rise 4% to £3.1mln.

The company, which wholesales and retails the letters at the end of web addresses (known as generic Top Level Domains, or gTLDs), said the growth stemmed from strong deferred revenues from previous periods, continued growth in annuity billings for existing inventory, the successful launch of new domain extensions, and consulting revenues relating to new TLDs.

Pre-tax profits dipped to £700,000 from £835,000 in the 12 months to 31 December 2013, while adjusted EBITDA (underlying earnings) also edged lower to £1.02mln from £1.13mln the year before, as the company invested to prepare for the land grab that will follow the relaxation in restrictions on gTLDs.

It is the company's first full-year results statement since listing on AIM in September when it raised £5mln.

"The numbers understate the underlying progress, because we've started spending the money that we raised, as our investors would want us to do, which somewhat deflated the EBITDA number," chief executive Ben Crawford told Proactive Investors.

The company still achieved an excellent profit margin, he noted, with the gross profit margin rising to 76.6% from 73.4%, reflecting the company's highly-geared operational model.

Chief financial officer (CFO) Glenn Hayward reinforced the high-margin nature of the business.

"Existing, established, registry operators – some of the biggest players in the industry – generate 50 per cent-plus EBITDA margins," Hayward said.

Like any CFPO, Hayward loves the fact that the company can add to the bottom line without having to spend a lot – the much sought-after ‘most of the revenue drops through to the bottom line' paradigm.

It is expected that the 25 new web names CentralNic was awarded by industry regulator ICANN, as well as an additional 26 it will have to contest in auctions, will boost this year's results when the domains launch in mid-2014.

"We are undertaking multiple new activities; we're launching retail web sites this year; we've launched five domains so far this year; we've got a lot of business development activities," Crawford explained. All of these things cost money upfront, but the benefits of all that investment won't be felt until later in the year.

"The revenues won't kick in until the second half of this year, and then we're going to see a lot," Crawford predicted.

CentralNic chairman John Swingewood said in the results statement: "The company is achieving sustained growth resulting from the continued demand for our domain names, establishing new retail channels and securing new inventory.

"The board is particularly pleased that these results are yet to include revenues from sales of our pipeline of new Top-Level Domains or of our new retail websites, all of which are starting their launch activities in mid-2014."

The company was involved in the recent much-ballyhooed launch of the .london TLD, not least through its own www.buydomains.london site, and although it is too early to declare whether the .london thing will be a success, Crawford is confident CentralNIC will see "some very decent results from that domain".

"Also domain.build for the global construction industry has kicked off to a very good start," Crawford revealed, as have two of the company's other TLDs: .luxury and .menu.

The company is set for a very busy year, and there should be no shortage of news flow, with the company involved in dozens of auctions for TLD, starting with the .city domain in June, followed by auctions in July for .gay, .blog, .app, .insurance, .online and .site.

Broker Zeus Capital described the 2013 performance by the pre-GTLD business as "solid", and is expecting the growth trajectory to change rapidly as a host of new TLDs are launched worldwide.

"The value of this business lies in the combination of forward contracts poised to deliver new earnings streams, and the existing infrastructure that is proven to deliver long-term annuity style earnings and high margins," Zeus's John Wilson said.

"Adj. EBITDA margin was lower at 33.3% versus 38.7% due to additional investment in headcount, the registry business and costs associated with AIM status. Once new revenue streams come online in H214 we expect EBITDA margins to bounce back towards 40% and flag that the US peer Verisign has EBITDA margins over 50% on revenues of US$1bn," Wilson said.

"CentralNic reports a strong cash position of £4.9mln that provides the resource to grow and deliver further on the strategic objectives," he added.

Shares were up 0.4% at 62.75p in lunch-time trading.