FY20 outlook confirmed

GB Group 25 October 2019 Update
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GB Group

FY20 outlook confirmed

H120 trading update

Software & comp services

25 October 2019

Price

602p

Market cap

£1,167m

Net debt (£m) at end H120

53.8

Shares in issue

193.8m

Free float

98.7%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.1

3.1

18.0

Rel (local)

7.4

4.8

11.7

52-week high/low

631.0p

410.5p

Business description

GB Group is a specialist in identity data intelligence. Its products and services enable its customers to better understand and verify their customers and employees, and are used across a range of fraud, risk management, compliance and customer on-boarding services. With headquarters in the UK, GB operates across 16 countries, has customers in 72 countries and generates more than 45% of revenues internationally.

Next events

H120 results

26 November

Analyst

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

GB Group (GBG) expects to report strong revenue and profit growth for H120, with exceptional organic growth boosted by recent acquisitions. Constant currency organic growth of 18% is ahead of the company’s double-digit target, boosted to a large extent by the signing of contracts in the Fraud division that had been expected in H2. Management expects to meet FY20 consensus estimates, implying a stronger weighting to H1 revenues and profits than in previous years. We maintain our forecasts.

Year end

Revenue (£m)

EBIT*
(£m)

PBT*
(p)

Diluted EPS*
(p)

DPS
(p)

P/E (x)

03/18

119.7

26.3

25.8

13.5

2.7

44.7

03/19

143.5

32.0

31.3

15.4

3.0

39.1

03/20e

192.6

44.0

40.7

16.4

3.4

36.6

03/21e

213.9

48.4

45.5

18.4

3.8

32.8

Note: *EBIT, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Impressive revenue and profit growth in H120

GBG expects to report H120 revenues of £93.7m, equating to year-on-year growth of 64%. Stripping out the impact of currency and the Vix Verify (October 2018) and IDology (February 2019) acquisitions, organic revenues were 18% higher. Management noted that GBG achieved organic growth in each of its three core products and across all target geographies. Expected adjusted operating profit of £20.9m is 138% higher y-o-y with a margin of 22.3% (FY20e 22.9%). The company reduced net debt from £65.7m at the end of FY19 to £53.8m at the end of H120.

Full-year expectations maintained

Management expects to achieve consensus expectations for FY20 revenues (£195.5m) and profit (£45.0m), noting that H1 benefited from contracts in the Fraud division that were pulled forward from H2 to H1. H120 revenues make up 48.7% of our FY20e forecast, compared to 40%/44%/43% contributions to full year revenues in H119/18/17 respectively, reflecting the accelerated signing of these contracts.

Valuation: Factoring in strong, profitable growth

The stock responded strongly to this update (+14% on the day), returning to the level it was trading at after the Identity capital markets day in July. The stock trades at a premium to the UK software sector and towards the top end of its ID management peer group on a P/E basis, reflecting its strong growth outlook and high recurring revenues. Our reverse DCF analysis estimates the current share price is factoring in operating margins of c 24.5% and revenue growth of c 13% pa from FY23, slightly ahead of the group’s revenue and margin targets. Triggers for upside from the current share price could include accretive acquisitions, successful cross-selling from recent acquisitions and adoption of GBG’s combined identity/location solution.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

57,283

73,401

87,468

119,702

143,504

192,626

213,889

237,321

Cost of Sales

(16,448)

(17,606)

(20,302)

(27,092)

(36,060)

(52,164)

(55,707)

(61,765)

Gross Profit

40,835

55,795

67,166

92,610

107,444

140,462

158,182

175,556

EBITDA

 

 

11,844

14,772

18,734

28,741

34,080

46,241

50,662

55,352

Operating Profit (before amort. and except.)

10,790

13,428

17,006

26,311

32,031

44,020

48,355

52,955

Acquired intangible amortisation

(1,986)

(2,501)

(4,022)

(7,885)

(10,316)

(19,300)

(17,100)

(16,500)

Exceptionals

(1,629)

(94)

(1,410)

(2,143)

(4,003)

0

0

0

Share of associate

(10)

0

0

0

0

0

0

0

Share based payments

(971)

(1,245)

(994)

(2,375)

(2,287)

(2,516)

(2,767)

(3,044)

Operating Profit

6,194

9,588

10,580

13,908

15,425

22,204

28,487

33,411

Net Interest

(266)

(270)

(498)

(508)

(689)

(3,280)

(2,880)

(2,580)

Profit Before Tax (norm)

 

 

10,524

13,158

16,508

25,803

31,342

40,740

45,475

50,375

Profit Before Tax (FRS 3)

 

 

5,928

9,318

10,082

13,400

14,736

18,924

25,607

30,831

Tax

(1,127)

(178)

668

(2,746)

(2,583)

(3,974)

(5,378)

(6,474)

Profit After Tax (norm)

8,314

10,395

13,206

20,642

24,760

32,184

35,925

39,796

Profit After Tax (FRS 3)

4,801

9,140

10,750

10,654

12,153

14,950

20,230

24,356

Average Number of Shares Outstanding (m)

119.1

122.7

131.6

150.6

158.1

193.1

193.5

194.0

EPS - normalised (p)

 

 

7.0

8.5

10.0

13.7

15.7

16.7

18.6

20.5

EPS - normalised and fully diluted (p)

 

6.7

8.2

9.9

13.5

15.4

16.4

18.4

20.3

EPS - (IFRS) (p)

 

 

4.0

7.4

8.2

7.1

7.7

7.7

10.5

12.6

Dividend per share (p)

1.9

2.1

2.4

2.7

3.0

3.4

3.8

4.3

Gross Margin (%)

71.3

76.0

76.8

77.4

74.9

72.9

74.0

74.0

EBITDA Margin (%)

20.7

20.1

21.4

24.0

23.7

24.0

23.7

23.3

Operating Margin (before GW and except.) (%)

18.8

18.3

19.4

22.0

22.3

22.9

22.6

22.3

BALANCE SHEET

Fixed Assets

 

 

51,238

59,364

105,653

170,284

435,195

416,474

399,967

384,069

Intangible Assets

45,296

54,113

98,753

161,372

421,747

402,047

384,547

367,647

Tangible Assets

2,829

2,234

2,856

4,700

4,815

5,794

6,787

7,789

Other fixed assets

3,113

3,017

4,044

4,212

8,633

8,633

8,633

8,633

Current Assets

 

 

33,186

36,189

48,914

61,121

76,404

112,767

147,458

186,187

Debtors

17,408

23,774

30,569

37,969

54,874

73,198

81,278

90,182

Cash

15,778

12,415

17,618

22,753

21,189

39,228

65,839

95,664

Other

0

0

727

399

341

341

341

341

Current Liabilities

 

 

(30,784)

(32,559)

(44,444)

(56,942)

(73,432)

(89,375)

(95,062)

(101,824)

Creditors

(24,305)

(30,927)

(36,436)

(56,100)

(71,912)

(87,855)

(93,542)

(100,304)

Contingent consideration

(5,733)

(1,050)

(7,122)

(45)

(79)

(79)

(79)

(79)

Short term borrowings

(746)

(582)

(886)

(797)

(1,441)

(1,441)

(1,441)

(1,441)

Long Term Liabilities

 

 

(7,506)

(6,593)

(15,940)

(16,711)

(114,995)

(104,995)

(100,995)

(96,995)

Long term borrowings

(3,643)

(3,160)

(11,499)

(8,451)

(85,447)

(75,447)

(71,447)

(67,447)

Contingent consideration

(895)

0

0

0

0

0

0

0

Other long term liabilities

(2,968)

(3,433)

(4,441)

(8,260)

(29,548)

(29,548)

(29,548)

(29,548)

Net Assets

 

 

46,134

56,401

94,183

157,752

323,172

334,871

351,367

371,437

CASH FLOW

Operating Cash Flow

 

 

11,684

13,397

16,305

31,620

27,779

43,859

48,269

53,211

Net Interest

(266)

(282)

(498)

(545)

(720)

(3,280)

(2,880)

(2,580)

Tax

(337)

(248)

(2,193)

(3,247)

(2,930)

(3,974)

(5,378)

(6,474)

Capex

(2,011)

(1,762)

(2,227)

(2,018)

(1,625)

(2,800)

(2,900)

(3,000)

Acquisitions/disposals

(18,672)

(12,263)

(36,840)

(70,363)

(255,101)

0

0

0

Financing

10,954

790

24,755

56,668

157,339

0

0

0

Dividends

(1,955)

(2,277)

(2,775)

(3,582)

(4,049)

(5,766)

(6,501)

(7,331)

Net Cash Flow

(603)

(2,645)

(3,473)

8,533

(79,307)

28,039

30,611

33,825

Opening net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(5,233)

(13,505)

65,699

37,660

7,049

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

146

(71)

33

(261)

103

0

0

0

Closing net debt/(cash)

 

 

(11,389)

(8,673)

(5,233)

(13,505)

65,699

37,660

7,049

(26,776)

Source: GB Group, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by GB Group and prepared and issued by Edison, in consideration of a fee payable by GB Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by GB Group and prepared and issued by Edison, in consideration of a fee payable by GB Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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