CentralNic “Team Internet client base represents an upsell opportunity” says Zeus Capital

CentralNic Group
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CentralNic Group (LON:CNIC) has announced the acquisition of Team Internet for a total consideration of $48m. The acquisition will be financed in part by a further €40m bond issue under identical terms to the €50m issue announced on 23 May 2019. Team Internet operates a ‘domain monetisation’ platform, allowing domain name owners to monetise dormant domains to generate recurring income to offset renewal fees and earn a profit. This provides a complimentary service to existing CNIC services: clients currently pay CentralNic subscription fees to register and renew domain names. Team Internet had revenues of $66.7m in the 12 months to June 2019, with EBITDA of $10.6m. We expect this transaction to have an immaterial impact to 2019E due to timing and be 43.8% accretive to 2020E earnings. Post completion, we estimate net debt:EBITDA will be 2.1x in 2020E falling to 1.6x in 2021E.

  • Team Internet: Operates a ‘domain monetisation’ platform. This allows domain owners to generate recurring income to offset renewal fees or earn a profit. Team Internets proprietary platform displays tailored advertising to internet users when they land on these domains; advertisers whose ads are being displayed on the page pay for click throughs and revenue generated from these advertisers shared between Team Internet and the domain owner. The company generated revenue of $66.7m in the 12 months to June 2019 and unaudited adj. EBITDA of $10.6m. Team Internet has a highly automated channel business, generating $1.6m of revenue per employee. Team Internet fits well in to CNICs existing model of selling domain related digital services, it is a recurring revenue, cloud-based service and its client base represents an upsell opportunity for CNIC’s existing suite of services.
  • Acquisition: CNIC will pay a total consideration of $48m, representing 4.5x trailing EBITDA to June 2019. Initial consideration will be made up of $42m payable in cash and $3m payable in shares with a deferred $3m cash payment. The acquisition will be financed through a further €40m ($44m) issue of senior bonds, under identical terms to the €50m issue announced on the 23rd May, paying a floating rate of 3-month EURIBOR +7% (with a floor of 0% on EURIBOR).
  • Trading update: CentralNic Group also provided a brief trading update confirming trading for the year is in line with the upper end of analyst expectations. We leave our underling forecasts unchanged as a result.
  • Forecasts: We leave our forecasts unchanged for now, preferring to wait until the acquisition is complete. Upon completion, we estimate the transaction will be 43.8% accretive to earnings in 2020E and 40.6% in 2021E. Post transaction net debt to EBITDA will be 2.1x in 2020E (vs 1.5x previously) falling to 1.6x in 2021E.

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