CentralNic Group has its eyes on the big prizes

Proactive Investors

Source: http://www.proactiveinvestors.co.uk/companies/news/79758/big-picture-centralnic-group-has-its-eyes-on-the-big-prizes-79758.html

Internet platform business CentralNic (LON:CNIC) intends to keep its foot down after doubling revenue in 2014

The group, which made its name as a registry services provider (keeping a database of top level domains (TLDs) assigned by registrars - finished the year with three profitable operating divisions: registry services, registrar services and enterprise services.

In a year in which it launched eight new generic TLDs, or gTLDs, it ranked second by volume in the league table of new registry providers behind long-time industry giant Donuts.

Billings, which include shares attributable to CentralNic's partners, shot up to £9.89mln in 2014 from £3.89mln in 2013, while revenue doubled to £6.07mln from £3.05mln.

"Growth included early revenues from the new top level domains combined with steady performance from CentralNic's legacy portfolio of Second-Level Domain extensions (including the likes of .uk.com, .us.com and .cn.com) and country codes like .LA and .PW," noted broker Canaccord Genuity.

Speaking to Proactive Investors, chief executive officer Ben Crawford said these second level domain extensions are tremendously valuable.

"We're not selling them, of course, but we're talking a high seven figures/low eight figures valuation," he said.

Adjusted underlying earnings (EBITDA) climbed to £1.72mln from £1.02mln the year before.

Post year end, CentralNIc announced nine additional exclusive gTLD contracts for .site, .online, .tech, .fan, .love, .forum, .realty, .rent, .coop.

"These are not niche domains like some of those we've seen released previously. The first ones to launch were not necessarily the best; the best ones are going to come from CentralNic," Crawford asserted.

It remains the directors' intention to recommend payment of a dividend when appropriate and commercially prudent to do so, but the sector is still in land grab at present, so no final dividend has been proposed.

"We're going to retain earnings to finance growth," chief financial officer Glenn Hayward told Proactive Investors.

"If you look at the valuation of our peers on the other side of the Atlantic, there is a big opportunity in this market, and it is too soon to just sit back and watch the money roll in," Crawford believes.

That being said, we are approaching the may anniversary of the creation of the first batch of new top level domain name registrations executed on CentralNic's platform, and the company is looking forward to a wave of renewals.

"A whole new revenue line is going to hit us," Crawford said. "So far, we've not earned dollar one in renewal revenue, and the best thing is, we don't have to work for this annuity revenue."

"Donuts started a bit earlier than us so they've started going through the renewal process. They've had 50% renewal rates on some and 70% on others, so we'll see," Crawford said.

The company conceded that current demand for new TLDs is still at a very early stage as many potential customers are still unaware of the increased options available to them, but awareness should grow in 2015 with the expected launch and promotion of new TLDs by the so-called "super brands" that will see domain names such as .Google and .amazon.

"When Google, Apple, Microsoft, the BBC all launch, it is going to be an unavoidable reality when users switch on their PCs," Crawford suggested, as he looked forward to a raising of awareness of the new TLDs that are available.

Joint broker Peel Hunt said it would not be making any changes to its forecasts based on this morning's results. It reiterated its target price of 70p, almost double the current share price, even after it shot up 3.5p from last night's close of 30.5p.

Zeus Capital said the results were in line with expectations and it is also sticking with its forecasts.

"Despite the difficulties and delays around the launch of new TLDs, management has been proactive and successfully established new revenue streams," the broker observed.

"CentralNic has established itself as a global leader among the new TLD distributors, performing well versus other listed peers to become ranked number two globally among new TLD Registry Service Providers by ntldstats.com with a 19.1% market share – Neustar is 3rd, Rightside Registry is 6th, Afilias is 8th, Minds and Machines is 9th, VeriSign is 10th," Zeus Capital said.

"Given the growth prospects, the strong operating cash flow characteristics of the business (110% cash flow conversion to EBITDA), the impressive track record being built by management via the successful acquisitions and the recent diversification of the business, we feel the shares offer investors a unique value opportunity given backdrop of the size of the industry, and the fact that CentralNic's listed peers are typically capitalised in the billions of dollarsm" Zeus Capital concluded.