Last close As at 05/08/2026
GBP2.22
▲ 1.00 (0.45%)
Market capitalisation
GBP508m
Research: TMT
GB Group (GBG) has acquired IDology, a US identity verification business, for an enterprise value of $300m/£231m. It has placed 39m shares at 410p per share to fund £160m of the purchase price, with the remainder coming from a new credit facility. We estimate that the deal offers significant cross-selling potential and will boost GBG’s international revenues to close to 50%.
GB Group |
Expanding eIDV in the US |
Acquisition and fund raise |
Software & comp services |
13 February 2019 |
Share price performance
Business description
Next events
Analysts
GB Group is a research client of Edison Investment Research Limited |
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GB Group (GBG) has acquired IDology, a US identity verification business, for an enterprise value of $300m/£231m. It has placed 39m shares at 410p per share to fund £160m of the purchase price, with the remainder coming from a new credit facility. We estimate that the deal offers significant cross-selling potential and will boost GBG’s international revenues to close to 50%.
Year end |
Revenue (£m) |
EBIT (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
03/17 |
87.5 |
17.0 |
16.5 |
9.9 |
2.4 |
42.6 |
03/18 |
119.7 |
26.3 |
25.8 |
13.5 |
2.7 |
31.2 |
03/19e |
137.7 |
27.5 |
26.6 |
13.1 |
3.0 |
32.1 |
03/20e |
192.8 |
44.1 |
40.3 |
16.1 |
3.3 |
26.1 |
Note: *EBIT, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Gaining a major presence in the US
The acquisition of IDology adds domestic US data sets and more than 500 customers. We estimate it will boost FY20 revenues by 19%, and eIDV divisional revenues by 52%. In H119, 36% of group revenues came from outside the UK – we estimate that this deal will push international revenues closer to 50%. IDology is significantly more profitable than GBG (EBITDA margin 42% vs GBG at 22%), and we expect this to continue to be the case even after GBG invests in additional sales capacity to maintain IDology’s mid-teens revenue growth rate. GBG expects the deal to be earnings enhancing in FY20 – we forecast 3% diluted EPS accretion.
Good strategic and cultural fit
GBG and IDology have partnered for a number of years and know each other well. The current CEO of IDology has committed to run the business for at least the next year, which should smooth the integration of the business. GBG sees good opportunities for cross-selling, in particular providing IDology’s customers with access to its non-US datasets and to Loqate, its location intelligence service.
Valuation: Premium reflects growth opportunity
At 29.2x FY19e and 18.8x FY20e EBITDA, the stock trades at a premium to the UK software sector on an EV/EBITDA and P/E basis. Looking at more directly relevant sub-sectors, including global peers, the stock trades more in line with cyber-security peers, with similar levels of forecast profitability and growth. We believe this premium rating is warranted, considering the group’s historic track record of profitable growth and strong cash generation, combined with the opportunity from structural growth in identity data intelligence services and the potential for accretive acquisitions.
Acquisition of IDology
Terms of the deal
GBG has acquired IDology, a US provider of identity verification and fraud detection services for an enterprise value of $300m/£231m. GBG will also pay $1m for $1m cash on the IDology balance sheet. The deal is being funded through a combination of debt and equity.
■
Debt: the company has arranged a new revolving credit facility worth £110m with a £30m accordion. It expects to use c £84m of this facility to partly fund the acquisition.
■
Fund raising: the company has placed shares worth £160m – 39.024m shares at 410p per share, a 3% discount to last night’s closing price. The placing shares represent 25.5% of the existing 153.1m shares outstanding.
The company expects the shares to be issued on AIM on 14 February. Around $7.5m of the consideration will be held in escrow as security for various buyer protection items.
Background on IDology
IDology (www.idology.com) is privately owned, with CEO John Dancu owning more than 50% of the shares. The company is based in Atlanta, Georgia with 70 employees. It has 500 customers and generates more than 70% of revenues from the financial services sector (in H119 GBG generated 28% of revenues from this sector). Its platform provides services in three main areas:
■
onboarding;
■
verification and set-up; and
■
authentication
All customers are also signed up to IDology’s fraud consortium, which shares information on fraudulent activity across its members.
Revenues are generated on a per-transaction basis, with agreed minimums. GBG and IDology have partnered in recent years, each recommending the other to multi-national customers for data sets in their respective regions. The companies have worked together with customers such as Ebay and Etsy.
Financial performance: Strong growth and margins
Exhibit 1: IDology historic financial performance
$m (US GAAP) |
CY16 |
CY17 |
CY18 |
Revenues |
28.4 |
33.3 |
38.2 |
Gross profit |
18.4 |
21.8 |
25.3 |
Opex |
(7.2) |
(8.0) |
(9.0) |
EBITDA |
11.2 |
13.8 |
16.3 |
PBT |
11.1 |
13.7 |
16.2 |
Revenue growth |
17% |
15% |
|
Gross margin |
64.8% |
65.5% |
66.2% |
EBITDA margin |
39.4% |
41.4% |
42.7% |
Source: GB Group
Based on an EV of $300m, this values IDology at 7.9x trailing sales and 18.4x trailing EBITDA. Based on our initial forecasts for the business below, this reduces to 6.6x and 17.3x respectively for FY20. This compares to GBG EV multiples of 4.0x FY20e sales and 19.3x FY20e EBITDA based on a share price of 423p before the deal being announced.
Post-acquisition plans
According to management, IDology has not invested heavily in its domestic salesforce, instead generating the impressive level of revenue growth from a high level of upselling to the existing customer base. GBG is keen to maintain the business’s strong growth rate and intends to strengthen the US sales team to accelerate new customer wins.
The CEO, John Dancu, has committed to run the acquired business for at least one year, and the rest of the senior management team will be incentivised to stay for at least two years.
GBG does not intend to combine the two platforms, instead it plans to link the two so that a customer can access data from either platform in one place.
The company sees scope for significant cross-selling from two sources:
■
providing international data sets to IDology’s US multi-national customer base.
■
adding Loqate to the front-end of the IDology platform.
The acquisition will materially increase revenues generated in the US compared to the 9% reported in FY18.
Earnings accretive in FY20
Management expects the deal to be earnings enhancing in the first full year after acquisition (FY20). We assume all IDology revenues will be included in the eIDV business line. Based on GBG management’s plans to increase sales headcount, we factor in sales growth being maintained at 15% per year but a declining EBITDA margin.
Exhibit 2: IDology forecasts
$m |
FY20e |
FY21e |
Revenues |
45.5 |
52.2 |
Gross profit |
31.1 |
36.0 |
Opex |
(13.7) |
(17.1) |
EBITDA |
17.4 |
18.9 |
PBT |
||
Rev growth |
15% |
15% |
Gross margin |
69% |
69% |
EBITDA margin |
38.4% |
36.2% |
Source: Edison Investment Research
The table below contains our revised estimates and we introduce forecasts for FY21. While the net debt/EBITDA ratio at the end of FY19 looks high, this only includes 1.5 months’ EBITDA contribution from IDology. The combination of a full year EBITDA contribution and cash generation reduces the metric to 1.0x by the end of FY20.
Exhibit 3: Changes to forecasts
£m |
|
FY19e |
FY19e |
|
|
FY20e |
FY20e |
|
FY21e |
|
previous |
new |
change |
|
previous |
new |
change |
new |
|
Revenues |
136,350 |
137,650 |
1.0% |
161,676 |
192,757 |
19.2% |
214,322 |
||
Gross profit |
102,440 |
104,105 |
1.6% |
121,724 |
140,486 |
15.4% |
158,436 |
||
EBITDA |
29,675 |
30,175 |
1.7% |
33,689 |
46,918 |
39.3% |
51,429 |
||
EBITDA margin |
21.8% |
21.9% |
0.2% |
20.8% |
24.3% |
3.5% |
24.0% |
||
EBITA |
27,000 |
27,500 |
1.9% |
30,932 |
44,062 |
42.4% |
48,481 |
||
EBITA margin |
19.8% |
20.0% |
0.2% |
19.1% |
22.9% |
3.7% |
22.6% |
||
PBT |
26,431 |
26,638 |
0.8% |
30,352 |
40,282 |
32.7% |
45,001 |
||
EPS - normalised, diluted (p) |
13.8 |
13.1 |
-5.0% |
15.6 |
16.1 |
3.0% |
17.9 |
||
EPS - reported (p) |
5.7 |
3.1 |
-45.3% |
9.5 |
12.2 |
29.4% |
14.4 |
||
Net (cash)/debt |
(5,697) |
71,565 |
Nm |
(23,249) |
47,889 |
Nm |
22,383 |
||
Net debt/EBITDA |
N/A |
2.4 |
N/A |
1.0 |
0.4 |
Source: Edison Investment Research
Valuation
The table below shows GBG trades compared to ID management companies, identity access management software companies and more general cyber-security companies, as well as UK software peers.
Exhibit 4: Financial and valuation metrics
Rev growth (%) |
EBITDA margin (%) |
EBIT margin (%) |
EV/Sales (x) |
EV/EBITDA (x) |
P/E (x) |
|||||||
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
|
GBG |
15.0 |
40.0 |
21.9 |
24.3 |
20.0 |
22.9 |
6.4 |
4.6 |
29.2 |
18.8 |
32.1 |
26.1 |
ID Management |
6.8 |
9.2 |
18.7 |
25.7 |
13.5 |
20.6 |
4.0 |
4.0 |
32.3 |
16.9 |
20.5 |
19.0 |
Identity Access Management |
26.4 |
23.9 |
-16.6 |
-3.1 |
-19.7 |
-7.0 |
9.3 |
7.4 |
23.0 |
18.2 |
28.1 |
23.2 |
Cyber Security |
14.4 |
12.6 |
23.1 |
24.6 |
19.1 |
20.5 |
6.0 |
5.3 |
54.6 |
31.7 |
50.5 |
43.5 |
UK Software |
23.8 |
24.3 |
8.5 |
19.6 |
0.2 |
14.2 |
4.6 |
3.2 |
13.4 |
11.3 |
20.8 |
18.9 |
Source: Edison Investment Research, Thomson Eikon. Note: Prices at 11 February.
Based on the new share count and current share price of 420p, GBG is trading at a premium to the UK software sector on all metrics, reflecting its superior profitability. Looking at more directly relevant sub-sectors, including global peers, the stock trades on multiples more akin to cyber-security peers, with similar levels of profitability and growth. We believe this premium rating is warranted, considering the group’s historic track record of profitable growth and strong cash generation combined with the opportunity from structural growth in identity data intelligence services. Using a reverse DCF, we estimate that the current share price is factoring in low-double digit revenue growth and EBIT margins of 22%, in line with management’s targets for organic growth of 10%+ and AOP margins of 20%+. We expect management to continue to make accretive acquisitions to boost growth, which should provide further support to the share price.
Exhibit 5: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
57,283 |
73,401 |
87,468 |
119,702 |
137,650 |
192,757 |
214,322 |
Cost of Sales |
(16,448) |
(17,606) |
(20,302) |
(27,092) |
(33,545) |
(52,271) |
(55,886) |
||
Gross Profit |
40,835 |
55,795 |
67,166 |
92,610 |
104,105 |
140,486 |
158,436 |
||
EBITDA |
|
|
11,844 |
14,772 |
18,734 |
28,741 |
30,175 |
46,918 |
51,429 |
Operating Profit (before amort. and except.) |
10,790 |
13,428 |
17,006 |
26,311 |
27,500 |
44,062 |
48,481 |
||
Acquired intangible amortisation |
(1,986) |
(2,501) |
(4,022) |
(7,885) |
(8,100) |
(7,300) |
(6,100) |
||
Exceptionals |
(1,629) |
(94) |
(1,410) |
(2,143) |
(9,830) |
0 |
0 |
||
Share of associate |
(10) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Share based payments |
(971) |
(1,245) |
(994) |
(2,375) |
(2,500) |
(2,750) |
(3,025) |
||
Operating Profit |
6,194 |
9,588 |
10,580 |
13,908 |
7,070 |
34,012 |
39,356 |
||
Net Interest |
(266) |
(270) |
(498) |
(508) |
(863) |
(3,780) |
(3,480) |
||
Profit Before Tax (norm) |
|
|
10,524 |
13,158 |
16,508 |
25,803 |
26,638 |
40,282 |
45,001 |
Profit Before Tax (FRS 3) |
|
|
5,928 |
9,318 |
10,082 |
13,400 |
6,208 |
30,232 |
35,876 |
Tax |
(1,127) |
(178) |
668 |
(2,746) |
(1,291) |
(6,590) |
(7,893) |
||
Profit After Tax (norm) |
8,314 |
10,395 |
13,206 |
20,642 |
21,097 |
31,500 |
35,101 |
||
Profit After Tax (FRS 3) |
4,801 |
9,140 |
10,750 |
10,654 |
4,916 |
23,641 |
27,983 |
||
Average Number of Shares Outstanding (m) |
119.1 |
122.7 |
131.6 |
150.6 |
157.8 |
193.1 |
193.8 |
||
EPS - normalised (p) |
|
|
7.0 |
8.5 |
10.0 |
13.7 |
13.4 |
16.3 |
18.1 |
EPS - normalised and fully diluted (p) |
|
6.7 |
8.2 |
9.9 |
13.5 |
13.1 |
16.1 |
17.9 |
|
EPS - (IFRS) (p) |
|
|
4.0 |
7.4 |
8.2 |
7.1 |
3.1 |
12.2 |
14.4 |
Dividend per share (p) |
1.9 |
2.1 |
2.4 |
2.7 |
3.0 |
3.3 |
3.8 |
||
Gross Margin (%) |
71.3 |
76.0 |
76.8 |
77.4 |
75.6 |
72.9 |
73.9 |
||
EBITDA Margin (%) |
20.7 |
20.1 |
21.4 |
24.0 |
21.9 |
24.3 |
24.0 |
||
Operating Margin (before GW and except.) (%) |
18.8 |
18.3 |
19.4 |
22.0 |
20.0 |
22.9 |
22.6 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
51,238 |
59,364 |
105,653 |
170,284 |
416,823 |
409,416 |
403,218 |
Intangible Assets |
45,296 |
54,113 |
98,753 |
161,372 |
406,955 |
398,675 |
391,595 |
||
Tangible Assets |
2,829 |
2,234 |
2,856 |
4,700 |
5,656 |
6,529 |
7,411 |
||
Other fixed assets |
3,113 |
3,017 |
4,044 |
4,212 |
4,212 |
4,212 |
4,212 |
||
Current Assets |
|
|
33,186 |
36,189 |
48,914 |
61,121 |
77,744 |
111,141 |
139,737 |
Debtors |
17,408 |
23,774 |
30,569 |
37,969 |
49,662 |
63,382 |
70,473 |
||
Cash |
15,778 |
12,415 |
17,618 |
22,753 |
27,683 |
47,359 |
68,865 |
||
Other |
0 |
0 |
727 |
399 |
399 |
399 |
399 |
||
Current Liabilities |
|
|
(30,784) |
(32,559) |
(44,444) |
(56,942) |
(66,290) |
(75,610) |
(77,460) |
Creditors |
(24,305) |
(30,927) |
(36,436) |
(56,100) |
(65,493) |
(74,813) |
(76,663) |
||
Contingent consideration |
(5,733) |
(1,050) |
(7,122) |
(45) |
0 |
0 |
0 |
||
Short term borrowings |
(746) |
(582) |
(886) |
(797) |
(797) |
(797) |
(797) |
||
Long Term Liabilities |
|
|
(7,506) |
(6,593) |
(15,940) |
(16,711) |
(106,711) |
(102,711) |
(98,711) |
Long term borrowings |
(3,643) |
(3,160) |
(11,499) |
(8,451) |
(98,451) |
(94,451) |
(90,451) |
||
Contingent consideration |
(895) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(2,968) |
(3,433) |
(4,441) |
(8,260) |
(8,260) |
(8,260) |
(8,260) |
||
Net Assets |
|
|
46,134 |
56,401 |
94,183 |
157,752 |
321,565 |
342,235 |
366,784 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
11,684 |
13,397 |
16,305 |
31,620 |
18,045 |
42,518 |
46,188 |
Net Interest |
(266) |
(282) |
(498) |
(545) |
(863) |
(3,780) |
(3,480) |
||
Tax |
(337) |
(248) |
(2,193) |
(3,247) |
(1,291) |
(6,590) |
(7,893) |
||
Capex |
(2,011) |
(1,762) |
(2,227) |
(2,018) |
(2,650) |
(2,750) |
(2,850) |
||
Acquisitions/disposals |
(18,672) |
(12,263) |
(36,840) |
(70,363) |
(254,708) |
0 |
0 |
||
Financing |
10,954 |
790 |
24,755 |
56,668 |
160,446 |
0 |
0 |
||
Dividends |
(1,955) |
(2,277) |
(2,775) |
(3,582) |
(4,049) |
(5,721) |
(6,459) |
||
Net Cash Flow |
(603) |
(2,645) |
(3,473) |
8,533 |
(85,070) |
23,677 |
25,506 |
||
Opening net debt/(cash) |
|
|
(11,846) |
(11,389) |
(8,673) |
(5,233) |
(13,505) |
71,565 |
47,889 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
146 |
(71) |
33 |
(261) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(11,389) |
(8,673) |
(5,233) |
(13,505) |
71,565 |
47,889 |
22,383 |
Source: GB Group, Edison Investment Research
|
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