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News from 2015

CentralNic puts its money where the internet’s mouth is

Source: Cambridge News, April 22, 2015.

When it comes to the internet and all that now goes with it, few people perhaps ascribe much thought to the aspect of top-level domain (TLD) names in terms of generating revenue.

However, what is overseen and maintained by the Internet Assigned Numbers Authority, a division of ICANN, the TLD area looks set to provide potentially significant growth for businesses which are already firmly rooted in the sector.

CentralNIC Group with its HQ in London is one such company that may interest investors who are looking to tap into this market, having floated on AIM as recently as autumn 2013.

As a software and services business, CNIC provides registry services, distribution and strategic consultancy for both top and lower-level domain names.

With its own in-house-developed IT platform, the company delivers the names from its own portfolio, which include among others and primarily for registrars, who then sell them on to end users.

London aside, the company also operates offices in New York, Dubai and Los Angeles, providing it with a global reach and positioning it in an ideal spot from which to capitalise on future opportunities.

And prospects look extremely promising, as the company has further broadened its already impressive range, picking up .tech, .fan, .forum and .rent, which sees it well placed for anticipated growth.

While revenue to date has been steady if less than spectacular, with income rising from just £1.86 million in 2010 to the last reported £3.05 million, it could now be on the cusp of delivering a marked jump, which may assist the rebuilding of a story that has thus far failed to convince investors.

CNIC’s preliminary results are due out in the next few weeks, and this could signal a reversal of what has been a pretty dire share performance over the last couple of years.

Currently 29.5p and with a market cap of just £18 million, the shares, although off the floor of 23p and attracting some interest, are well off the 77p achieved less than a year ago. The all-time high was £1.15.

While revenues within the market segments where it operates have endured something of a sluggish period, prospects ahead look considerably brighter and on a number of fronts.

An impending release of a significant number of new domain names should certainly assist the company’s growth prospects, where it already provides registration services that account for about 20% of new TLDs.

Additionally, CNIC has both positioned and subsequently strengthened its exposure to the potential growth driver areas, such as retail and corporate, in relation to not only new top-level names, but other aspects of the field.

The acquisition last summer of Internet.BS, which takes in domain name renewals and transfers has extended the company’s reach, while a strategic stake in Accent Media – which owns the rights to .tickets – looks like a positive move and also further strengthens prospects.

Current forecast for the forthcoming full year 2014 numbers is for an adjusted pre-tax profit of £1.4 million, on sharply increased revenues of £6.3 million, which in turn would deliver EPS of 1.4p.

While on that basis the PER of 20 may well suggest that the shares are now fairly priced, investors looking for the vital ingredients of growth and solid cash generation may wish to look beyond those numbers.

Indeed, an anticipation of revenues rising this year to £10.1 million, returning pre-tax profits of £2.8 million, gives a glimpse of the potential on offer and where strong earnings per share growth would see the PER dropping into an attractive single-digit figure of 9.

Although that then alters the picture somewhat and presents a potentially tempting prospect in its own right, the situation would appear to be further strengthened by the net cash position, which at a current £3 million is expected to rise to £8.8 million by next year, thus demonstrating the highly cash-generative nature of its businesses.

While CNIC’s technology platform manages the wholesale process of domain names, it does also sell directly to end-users via its own retail websites such as InternetBS.

There is also an after-sales and services segment of the operation playing a part, while the company holds a number of premium domain names which are as yet not even recognised on the balance sheet.

It is expected that within the next three years about 3.5 billion people across the world will be using the internet on a regular basis, fuelled in part by the deployment of ever more wireless technology.

With emerging economies and growing regions set to embrace the internet on a major scale, this could translate into substantial opportunities for CNIC.

While CNIC certainly isn’t without some downside risk, this would appear to be more one of timing than anything untoward and any delivery of a positive or upbeat message within the impending results may well serve as a catalyst for a rerating of the shares.