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Tremor has announced in today’s update that its platform’s momentum has continued to accelerate since its last update on 22 October. Tremor now expects FY20 revenue and EBITDA to be in the range of $390-400m for revenue (from $340-360m), and $50-52m for EBITDA (from $30-36m). This leads us to upgrade our FY20 and FY21 revenue forecasts by +13% and +12% to $394m and $470m, and upgrade our FY20 and FY21 EBITDA by +54% and +12% to $51m and $62m. The upgrades reflect that Tremor’s differentiated platform is capitalising upon the rebound and structural shift in advertising spend towards digital video and connected TV, through the success of the initiatives it launched in 2019 and the successful integration of Unruly. It is also the third upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2, and Tremor subsequently adopted a prudent approach to its FY20 guidance. We have mirrored this conservatism in our FY21 EBITDA of $62m, which compares with H2 20 EBITDA of $49m, and includes additional investment in R&D and new product releases with greater marketing spend, as Tremor looks to gain share within a market growing at c20% pa. We also highlight from p10 that Tremor is demonstrating the same trends and performance as its US peers Magnite and The Trade Desk, with each forecasted to see +15-35% organic revenue growth and +15-60% organic EBITDA growth in FY21, as they focus on expanding in connected TV. However, Tremor’s share price has only increased +22% since 1 October, while after Q3 results in November, Magnite and the Trade Desk have increased by +169% and +57%. Tremor is also trading at a vast discount to its US peers on all metrics, such as FY21 EV/EBITDA of 6x vs 32x and 129x, and at a discount to the finnCap Tech 40 on 14x with +9% EBITDA growth. As Tremor continues to deliver and exceed expectations, we do not expect that its current valuation will be sustainable due to market or external interest, and we upgrade our target price to 700p based on 20x FY21 EBITDA.
Companies: Tremor International Ltd.
Reach’s trading update highlights revenue growth tracking comfortably ahead of market expectations going into December. Digital sales, underpinned by strengthening customer engagement, has accelerated substantially to +16.2% y/y in the 5-months to 22 November (H1’20: -1.0%), and is strongly ahead of N1S H2 forecasts (+2.7% y/y). Print sales were in-line, with increased cross-promotion across Reach’s portfolio leading to stabilisation in HY y/y trends (H2 to date: -19.7%; H1: -20.1%). Management also report a ‘significant’ reduction in costs in-line with the Group’s transformation strategy, which combined with a higher Digital weighting, has pushed up AOP margins ‘materially’ on a sequential basis. As a function of this strong update, we upgrade FY’20E sales, AOP and adj FCF forecasts by 1%, 7% and 8% respectively. FY’21E FCF yield of 22% (pre-pension contributions) is materially ahead of global peers (4%-7%); a yield of 10% generates an intrinsic value of 310p/share.
Companies: Reach plc
9M 2020 ended September results confirm CNIC’s acquisition and growth strategy. The company delivered high pro forma sales growth with steady divisional gross margins. CNIC is investing in new products and integration activities to improve long-term growth and margins and expects current year results to be in line with management’s expectations. Acquisitions have added significant value and the company is assessing a strong pipeline of further opportunities. CNIC is well positioned to acquire at attractive valuations, improve target company operations and deliver synergies.
Companies: CentralNic Group Plc
YouGov’s capital markets event cast the spotlight on the next generation of its client offering, focusing on YouGov Direct, YouGov Chat and YouGov Safe. All of these are already being rolled out commercially. They clearly show the direction of travel to enable the group to scale more effectively and efficiently. All are predicated on the YouGov member being the data owner and granting explicit permission for how that data is used. No new financial information was disclosed, and our forecasts are unchanged.
Companies: YouGov plc
CentralNic’s Q320 results highlighted that the group is on course to meet management’s FY20 financial expectations, supported by organic growth and underpinned by a successful M&A strategy. Ytd revenue increased by 118% to US$168.5m, driven by contributions from the transformational acquisitions made in H219. Adjusted EBITDA increased by 68% to US$22.1m. On a pro forma basis, the group recorded organic revenue growth of 17% y-o-y, 10% growth in gross profits and 4% growth in adjusted EBITDA. Adjusted net debt stood at US$80.9m (adjusted for the US$36m cash payment for Codewise made in October). The company trades on an FY21 P/E multiple of 13.1x, which appears highly conservative for a group that has delivered a 69% revenue CAGR FY14–19 as it consolidates a globally fragmented market. We maintain our estimates.
4imprint is an easier to use, more convenient and better value alternative in a very large, fragmented market. Backed by an industry-leading marketing engine, these characteristics have enabled consistent market share gains, and yet share is still modest at 3%. In 2009, the market fell by 22% and 4imprint’s sales by 3% and EPS by 30% as the opportunity to invest in short-term marketing cost for long-term gain was grasped. In 2010, 4imprint’s sales rose by 15% and have averaged +18% p.a. since. The pandemic has hit 4imprint’s promotional products market hard, with industry sales down -44% in Q2, but the group has continued to invest in marketing throughout and is now accelerating spend, backed by its expertise and net cash balance. The timing and pace of a recovery is, of course, very hard to predict, but we believe history will repeat, and that 4imprint will accelerate market share gains and profits can return to pre-COVID levels in 2023.
Companies: 4imprint Group plc
Reach plc, the market-leading commercial regional and national news publisher, is approaching a positive revenue inflection point which is transformational to perceptions of the Group. With the 5th largest digital unique visitor base (>40m) in the UK (behind the likes of Facebook and Google), the Group has a material, yet currently under-exploited opportunity which could see Digital revenues double on a 4-year view. Among initiatives to unlock value, new management is focused on granular data capture, audience stratification, and targeted, highly-relevant content dissemination, with successful execution already manifesting itself in rising user engagement. Cost efficiencies and a mix shift towards Digital support margin expansion, and are forecast to improve already attractive FCF margins (FY’20E: 19%). A progressive dividend (N1S FY’21 DPS: 6.8p) augments the investment case whilst an intrinsic value of 300p/share offers significant upside potential.
We highlight this morning’s profit warnings from IQE (no coverage) and Nanoco (no coverage) as further support of: (1) our Year Ahead 2019 thesis to avoid hardware exposure as the most likely source of downgrades, and gain exposure to high-visibility recurring revenues and stronger balance sheets; and (2) the apparent end of the smartphone supercycle. We reiterate our Buy ratings on CloudCall* (CALL LN, PT 270p), Vianet (VNET LN, PT 142p) and Kape (KAPE LN, PT 120p) as our preferred names to exploit our key themes for 2019.
Companies: CALL VNET KAPE
Centaur’s Q3 shows high business resilience in the context of a challenging market backdrop. Ex-MarketMakers (“MM”; closed Aug’20), revenue decline slowed in Q3 to -16% y/y (Q2: -24%) whilst net cash actually rose (Q3: £9.3m; Q2: £8.4m) supported by exceptional cash management. Across Centaur’s portfolio, events and recruitment advertising saw continued CV19 impact, yet premium content performed well and the e-learning business saw continued strong demand. The Group also anticipate The Lawyer to achieve an FY’20E renewal rate of 105%. The Group is reinstating FY’20E guidance, with sales of >£32m from continuing ops (ex MM), and an adj EBITDA margin of c.10% (FY’19: 9%). Given improved visibility over FY’20 we also reinstate forecasts to the year end, yet longer term forecasting for events/ advertising streams remains challenging given fluidity in the macro backdrop. 0.75x EV/FY’20E sales (ex MM) looks inconsistent with growing premium content and elearning sales which make-up >50% of forecast FY’20E revenues.
Companies: Centaur Media plc
CentralNic announced the closing of the Codewise acquisition and that the company continues to trade in line with market expectations. We make no changes to our forecasts, which remain at the top end of consensus range. We formally publish our previously estimated consolidated forecasts, where we show over 20% earnings accretion in 2021E and 2022E. We expect ongoing investments to enhance growth opportunities for the group.
Future today released an update highlighting FY’20E adj EBITDA which is trading towards the top-end of consensus (£86.3m-£91.0m; N1Se: £88.5m). Strong performance has been supported by acceleration of the consumer shift to digital, positive cost control and cost synergy extraction from the TI Media acquisition (c.£9m annualised savings delivered so far). Migration of TI Media sites to the Group’s Vanilla platform are underway, whilst Hawk (price comparison platform) has been successfully deployed on three key existing TI Media websites. TI Media represents a significant opportunity to drive strong EBITDA growth in the medium-term as the portfolio transitions to digital, whilst the Group also has a number of additional levers to drive outperformance against conservative consensus forecasts. We leave forecasts unchanged for now, although upside risk is building. Future offers a 7% FY’21E FCF yield on N1Se forecasts, peers offer closer to 4%.
Companies: Future plc
Mirada plc* (MIRA.L, 72.5p/£6.5m) | Osirium Technologies plc (OSI.L 19p/£3.7m) | Corero Network Security plc (CNS.L, 11.0p/£54.7m) | Tern plc* (TERN.L, 7.7p/£23.2m)
Companies: MIRA OSI CNS TERN
Tremor has announced that it is acquiring Unruly from News Corp through the issuance of 8.5m new Tremor ordinary shares to News Corp (6.9% of Tremor’s prior shares or £14.5m), and Tremor has entered into a global partnership with News Corp for 3 years of exclusive access to outstream digital video adverts for over 50 News Corp publications, with Tremor committing to £30m of ad spend over 3 years. This indicates News Corp has considerable confidence in Tremor, and as News Corp now has a substantial interest in the Tremor investment case, it is anticipated that Rebekah Brooks (CEO of News UK) will join Tremor’s board. Tremor has also issued a short trading update, with FY19 EBITDA in line with market expectations (H2 c$39m), net cash in line except for a $5m advance, and FY19 revenue lower than expected due to Tremor focusing on its profitable, core activities and removing intercompany revenue. We consequently adjust our forecasts with a breakdown on p6. Tremor subsequently trades at a substantial discount to its peers on 12m fwd multiples of 2.4x EV/EBITDA and 5x adj P/E, and we look forward to Tremor issuing a more detailed trading update in late January.
We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT KKVX FAIR ICON RSE CRS GWI USF DIGS
With four acquisitions in FY19, CentralNic is a leading buy and build player in the domain name space, focused on consolidating a fragmented market. It offers a broad range of internet services, including reseller services, where it is the number two provider globally, as well as internet services to corporates and SMEs. Supported by underlying organic growth (6% company estimate), CentralNic has grown at a revenue CAGR of 69% from 2014–19 and has attractive cash flow dynamics with near 100% cash conversion and 92% repeat revenues. Q120 was in line with expectations and management has yet to see a material impact from COVID-19. The company is valued on an FY20 EV/EBITDA of 9.0x and a P/E of 12.4x, a 65% discount to its peer group, with our DCF indicating further share price upside. M&A should bring CentralNic’s multiples down further.