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CentralNic Group's acquisition strategy augmenting its growth surge

Instra Group has been an instant success and the group is confident the acquisition of Sk-NIC will give a boost to recurring revenues

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In September, the company renegotiated and renewed its exclusive wholesaler contract with XYZ.COM.

CentralNic Group PLC (LON:CNIC) is a fast-growing wholesale, retail and enterprise supplier of domain names and associated services, that has global ambitions.

For the uninitiated, in the internet world, the top-level domain (TLD) is the label given to the very last section of a web address, located after the last dot – so suffixes such as .com, .org and .gov.

READ: CentralNic secures US$3.4mln contract for sale of premium domain names

Back in 2011, a body called the Internet Corporation for Assigned Names and Numbers (ICANN) ended the restrictions on naming TLDs, ushering a new era for many companies such as CentralNic that had prepared properly for this revolution.

Domains using the new TLDs rose from 11mln at the beginning of 2016 to 27mln at the end with CentralNic riding this wave.

Crucial to this has been its relationship with XYZ.COM, which owns the .xyz TLD, one of the most popular in the world.

In September, the company renegotiated and renewed its exclusive wholesaler contract with XYZ.COM.

CentralNic will receive a fixed fee based on the volume of .xyz registrations and subscriptions managed.

The TLD has seen the most adoption from start-ups and entrepreneurs, as well as from business in emerging internet markets such as Indonesia and China.

Ben Crawford, chief executive of CentralNic, said: "The long-standing excellent relationship between CentralNic and .xyz has been updated to normalise the company's revenues and profits going forward.”

Acquisitions have also pulled their weight

CentralNic’s longer-term vision is to “join the ranks of world leaders in its industry, which include a number of multi-billion-dollar companies”.

Its growth strategy will focus on developing and scaling up its software platforms, while concentrating on growth areas, including China.

It also sees consolidation opportunities and chances to broaden its service offering.

Acquisitions must “meet clear strategic criteria including being earnings accretive in the short term with a strong recurring revenues base”.

Instra Group, acquired at the beginning of 2016, has been something of a star and now makes up the bulk of the retail division, the internet domain company’s largest and most lucrative arm.

During the first half of 2017, the retail business generated revenues of £7.97mln (H1 2016: £6.76mln), thanks to a full contribution from Instra this time around, which was responsible for around three-quarters of those sales.

Total revenues across the business – which also includes the wholesale and enterprise divisions – jumped 19% to £10.6mln (H1 2016: £8.9mln).

A slight improvement in margins saw gross profit surge by almost a third to £3mln (H1 2016: £2.3mln) while adjusted underlying earnings rose by 50% to 1.4mln (H1 2016: £0.9mln).

It is worth noting that the group’s results are traditionally weighted to the second half of the year. In December, the group revealed it was trading in line with expectations for the full year.

The acquisition of the Slovakian domain name manager SK-NIC for up to €26.1mln was another step forward in the group’s consolidation strategy.

The AIM-quoted outfit paid an initial €20.27mln for SK-NIC – which manages the top-level domain for Slovakia, .sk – with up to a further €5.85mln possibly to come in future milestone payments.

CentralNic said the SK-NIC purchase would be double-digit percentage earnings-enhancing in the first full year of ownership.

Given that the majority of Slovakian companies and websites use the .sk domain and 77% of those renew their licences every year, SK-NIC will increase the visibility and predictability of group revenues.

‘Acquisition another step forward’

“SK-NIC is a major, earnings enhancing acquisition for the group, which is wholly consistent with our growth strategy,” said chief executive Ben Crawford.

“The .sk country code adds a substantial new product and SK-NIC's network of over 2,100 local retailers extends our geographic footprint into an important new market with considerable growth potential.

“The acquisition of SK-NIC moves us another step forward in our strategy to increase substantially the proportion of group revenues generated from recurring revenue streams spread across diversified products, territories and customer types.”

Quick facts: Centralnic Group PLC

Price: 85.5 GBX

LSE:CNIC
Market: LSE
Market Cap: £161.46 m
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