Shares in the internet services specialist CentralNic Group PLC (AIM:CNIC) (LON:CNIC) are significantly undervalued, according to research from two investment banks very familiar with the industry and the company.
Berenberg said the stock trades on enterprise multiple (EV/EBITDA) of just nine times, yet peers in the domain name and ad-tech ‘spaces’ are on 23 times and 40 times respectively.
With this in mind and the fact that CentralNic generates a whopping 9% free cash flow yield, Berenberg reckons there is 110% “upside” for the stock from current levels.
A deeper dive
It said, following a deeper dive into the company’s first-half results, that its more bullish investment thesis was beginning to play out, setting a stage for a rerating of the group.
Stifel, meanwhile, has nudged up its price target on CentralNic to 256p a share from 242p in the wake of the company’s strong set of interims, which set the scene for a bumper full-year.
It pointed out that the group is benefiting from a number of headwinds including the digital transformation taking place online and an uptick in interest in digital inclusion and privacy.
Strong growth seam
CentralNic is also mining a “strong growth seam” generated by its recent acquisition, while an internal reorganisation will allow greater cross-selling opportunities, Stifel pointed out.
“The company's strategy is to rapidly build scale both through acquisitions and organic growth to maximise the potential of its high recurring revenue, high cash conversion business,” Stifel said in a note to clients.
“From the acquisitions, we are witnessing CentralNic add new revenue streams in core and co-related areas. It still has much potential by exploring co-related services in areas like hosting, cybersecurity, privacy, identity management and brand protection.”
Late morning, the shares were changing hands for 100p, up 4%. That’s still well shy of both Berenberg and Stifel valuations.