International expansion drives strong H2

GB Group 17 April 2019 Update
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GB Group

International expansion drives strong H2

FY19 trading update

Software & comp services

17 April 2019

Price

549p

Market cap

£1,059m

$1.31/£

Net debt (£m) at end FY19

66.3

Shares in issue

192.9m

Free float

98%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.0

18.1

31.0

Rel (local)

9.6

8.8

27.1

52-week high/low

626.0p

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, it operates across 24 countries and generates more than one-third of revenues internationally.

Next events

FY19 results

4 June

Analysts

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

GB Group expects to report FY19 revenues, adjusted operating profit and net debt ahead of consensus expectations. The recent acquisitions have integrated and performed well, providing much of the upside to forecasts. We have upgraded our FY19 earnings forecasts to reflect the better trading performance in H2 and lower net debt in FY20 and FY21.

Year end

Revenue (£m)

EBIT*

(£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

03/17

87.5

17.0

16.5

9.9

2.4

55.7

03/18

119.7

26.3

25.8

13.5

2.7

40.8

03/19e

143.3

31.7

30.8

15.1

3.0

36.2

03/20e

192.8

44.1

40.3

16.1

3.3

34.1

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

FY19 ahead of expectations

GB Group’s year-end trading update confirmed that the business saw strong trading in H219 to finish the year ahead of our and consensus expectations for revenue and adjusted operating profit. Revenues grew 19.7% y-o-y to £143.3m, 4.1% ahead of our £137.7m forecast. Adjusting revenues to reflect the perpetual licence signed in FY18 and for constant currency, underlying organic revenue growth was 11.3%. Adjusted operating profit of £31.7m (22.1% margin) is 15% ahead of our £27.5m forecast (20.0% margin). Net debt was also better than forecast, closing the year at £66.3m versus our £71.6m estimate.

Upgrading FY19e EPS by 15.8%

Based on the underlying organic growth rate disclosed by GBG, we estimate that the bulk of the revenue upside came from acquisitions. We had been conservative with our H219 estimates, reflecting potential integration risk. We have revised our forecasts to reflect better than expected contributions from Vix Verify and IDology resulting in a better overall operating margin. We leave our FY20 and FY21 EPS forecasts unchanged at this point as we have already factored in growth in acquisition-based revenues and organic growth similar to FY19. We reduce our FY20 and FY21 net debt forecasts to reflect the better position at the end of FY19.

Valuation: Factoring in strong growth

On an FY20e EV/EBITDA multiple of 24.0x and P/E multiple of 34.1x, the stock trades at a premium to the UK software sector. 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 historical 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.

Changes to forecasts

Exhibit 1: Changes to estimates

£m 

FY19e

FY19e

 

FY20e

FY20e

 

FY21e

FY21e

 

old

new

change

old

new

change

old

new

change

Revenues

137.7

143.3

4.1%

192.8

192.8

0.0%

214.3

214.4

0.0%

Gross profit

104.1

109.2

4.9%

140.5

140.6

0.0%

158.4

158.5

0.1%

EBITDA

30.2

34.4

13.9%

46.9

46.9

0.0%

51.4

51.4

0.0%

EBITDA margin

21.9%

24.0%

2.1%

24.3%

24.3%

0.0%

24.0%

24.0%

0.0%

EBITA

27.5

31.7

15.3%

44.1

44.1

0.0%

48.5

48.5

0.0%

EBITA margin

20.0%

22.1%

2.1%

22.9%

22.9%

0.0%

22.6%

22.6%

0.0%

PBT

26.6

30.8

15.8%

40.3

40.3

0.0%

45.0

45.0

0.0%

EPS – normalised, diluted (p)

13.1

15.1

15.8%

16.1

16.1

0.0%

17.9

17.9

0.0%

EPS – reported (p)

3.1

5.2

67.7%

12.2

12.2

0.0%

14.4

14.4

0.0%

Net debt

71.6

66.3

-7.3%

47.9

42.7

-10.9%

22.4

16.9

-24.3%

Net debt/EBITDA (x)

2.4

1.9

1.0

0.9

0.4

0.3

Source: Edison Investment Research

Exhibit 2: Financial summary

£000s

2015

2016

2017

2018

2019e

2020e

2021e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

57,283

73,401

87,468

119,702

143,300

192,754

214,354

Cost of Sales

(16,448)

(17,606)

(20,302)

(27,092)

(34,057)

(52,200)

(55,824)

Gross Profit

40,835

55,795

67,166

92,610

109,243

140,554

158,530

EBITDA

 

 

11,844

14,772

18,734

28,741

34,375

46,919

51,429

Operating Profit (before amort. and except.)

10,790

13,428

17,006

26,311

31,700

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

11,270

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

30,838

40,282

45,001

Profit Before Tax (FRS 3)

 

 

5,928

9,318

10,082

13,400

10,408

30,232

35,876

Tax

(1,127)

(178)

668

(2,746)

(2,165)

(6,591)

(7,893)

Profit After Tax (norm)

8,314

10,395

13,206

20,642

24,423

31,501

35,101

Profit After Tax (FRS 3)

4,801

9,140

10,750

10,654

8,243

23,641

27,984

Average Number of Shares Outstanding (m)

119.1

122.7

131.6

150.6

157.8

193.2

193.9

EPS - normalised (p)

 

 

7.0

8.5

10.0

13.7

15.5

16.3

18.1

EPS - normalised and fully diluted (p)

 

6.7

8.2

9.9

13.5

15.1

16.1

17.9

EPS - (IFRS) (p)

 

 

4.0

7.4

8.2

7.1

5.2

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

76.2

72.9

74.0

EBITDA Margin (%)

20.7

20.1

21.4

24.0

24.0

24.3

24.0

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

18.8

18.3

19.4

22.0

22.1

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

81,795

114,463

143,073

Debtors

17,408

23,774

30,569

37,969

48,487

61,481

68,370

Cash

15,778

12,415

17,618

22,753

32,909

52,584

74,304

Other

0

0

727

399

399

399

399

Current Liabilities

 

 

(30,784)

(32,559)

(44,444)

(56,942)

(67,015)

(75,609)

(77,474)

Creditors

(24,305)

(30,927)

(36,436)

(56,100)

(66,218)

(74,812)

(76,677)

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

324,892

345,559

370,106

CASH FLOW

Operating Cash Flow

 

 

11,684

13,397

16,305

31,620

24,145

42,519

46,405

Net Interest

(266)

(282)

(498)

(545)

(863)

(3,780)

(3,480)

Tax

(337)

(248)

(2,193)

(3,247)

(2,165)

(6,591)

(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)

(5,724)

(6,462)

Net Cash Flow

(603)

(2,645)

(3,473)

8,533

(79,844)

23,674

25,720

Opening net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(5,233)

(13,505)

66,339

42,664

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)

66,339

42,664

16,944

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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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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