Location, location, location

GB Group 14 December 2018 Update
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GB Group

Location, location, location

Capital markets day

Software & comp services

14 December 2018

Price

433.5p

Market cap

£664m

Net cash (£m) at end H119

18.6

Shares in issue

153.1m

Free float

98%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.4)

(26.8)

4.7

Rel (local)

(8.5)

(21.5)

14.7

52-week high/low

626p

387.5p

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 trading update

April 2019

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

GB Group is a research client of Edison Investment Research Limited

GB Group’s Loqate division was the focus of yesterday’s capital markets day. Presenters highlighted the need for accurate address data as a prerequisite for many business processes, including e-commerce, insurance and invoicing. Loqate’s ability to provide the “golden record” in a simple, fast and consistent way gives it a competitive edge and supports the division’s international growth ambitions.

Year end

Revenue (£m)

EBIT

(£m)

PBT*
(£m)

Dil. EPS*
(p)

DPS
(p)

P/E
(x)

03/17

87.5

17.0

16.5

9.9

2.4

44.0

03/18

119.7

26.3

25.8

13.5

2.7

32.2

03/19e

136.4

27.0

26.4

13.8

3.0

31.5

03/20e

161.7

30.9

30.4

15.6

3.3

27.7

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

“Where are you?” - Loqate provides the answer

At its capital markets day, GBG presented a deep dive into its Loqate division (34% of H119 revenues). The division provides location data in 240 countries/territories, in 130 address formats and eight character sets. Customers (Moo, Oracle) highlighted their reasons for using Loqate, including data quality, ongoing data maintenance and Loqate’s relationship management. As well as helping e-commerce retailers to reduce the rate of delivery failures (c 20% of deliveries fail due to inaccurate address details), Oracle highlighted that accurate address data are vital in software used for sales management, billing, and tax purposes.

Enriching location data; expanding internationally

With an estimated market opportunity of $1bn, and a c 25% UK market share, Loqate has the potential to gain a larger share of this market, particularly from international customers. It is focused on customers in the UK, the US, Germany, Canada and Australia/NZ, and currently generates c 20% of divisional revenues from outside the UK. Sales takes a three-pronged approach: self-service (11% of revenues), direct customers (66%) and channel partners (23%). The business sees scope to grow revenues through a combination of new customer wins and selling more data types (eg email and phone number verification, additional data on properties such as flood risk or number of bedrooms) to existing customers.

Valuation: Premium reflects growth opportunity

At 22.5x FY19e and 19.8x FY20e EBITDA, the stock trades at a premium to the UK software sector on an EV/EBITDA basis; on a P/E basis it trades at a discount in FY19 but a premium for FY20. Looking at more directly relevant sub-sectors, including global peers, the stock trades more in line with 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 good cash generation, combined with the opportunity from structural growth in identity data intelligence services and the potential for accretive acquisitions.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018

2019e

2020e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

57,283

73,401

87,468

119,702

136,350

161,676

Cost of Sales

(16,448)

(17,606)

(20,302)

(27,092)

(33,910)

(39,952)

Gross Profit

40,835

55,795

67,166

92,610

102,440

121,724

EBITDA

 

 

11,844

14,772

18,734

28,741

29,675

33,689

Operating Profit (before amort. and except.)

10,790

13,428

17,006

26,311

27,000

30,932

Acquired intangible amortisation

(1,986)

(2,501)

(4,022)

(7,885)

(8,100)

(7,300)

Exceptionals

(1,629)

(94)

(1,410)

(2,143)

(1,830)

0

Share of associate

(10)

0

0

0

0

0

Share based payments

(971)

(1,245)

(994)

(2,375)

(2,500)

(2,750)

Operating Profit

6,194

9,588

10,580

13,908

14,570

20,882

Net Interest

(266)

(270)

(498)

(508)

(569)

(580)

Profit Before Tax (norm)

 

 

10,524

13,158

16,508

25,803

26,431

30,352

Profit Before Tax (FRS 3)

 

 

5,928

9,318

10,082

13,400

14,001

20,302

Tax

(1,127)

(178)

668

(2,746)

(5,286)

(5,767)

Profit After Tax (norm)

8,314

10,395

13,206

20,642

21,541

24,585

Profit After Tax (FRS 3)

4,801

9,140

10,750

10,654

8,715

14,535

Average Number of Shares Outstanding (m)

119.1

122.7

131.6

150.6

153.0

153.6

EPS - normalised (p)

 

 

7.0

8.5

10.0

13.7

14.1

16.0

EPS - normalised and fully diluted (p)

 

6.7

8.2

9.9

13.5

13.8

15.6

EPS - (IFRS) (p)

 

 

4.0

7.4

8.2

7.1

5.7

9.5

Dividend per share (p)

1.9

2.1

2.4

2.7

3.0

3.3

Gross Margin (%)

71.3

76.0

76.8

77.4

75.1

75.3

EBITDA Margin (%)

20.7

20.1

21.4

24.0

21.8

20.8

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

18.8

18.3

19.4

22.0

19.8

19.1

BALANCE SHEET

Fixed Assets

 

 

51,238

59,364

105,653

170,284

183,360

176,053

Intangible Assets

45,296

54,113

98,753

161,372

173,492

165,212

Tangible Assets

2,829

2,234

2,856

4,700

5,656

6,629

Other fixed assets

3,113

3,017

4,044

4,212

4,212

4,212

Current Assets

 

 

33,186

36,189

48,914

61,121

66,606

87,941

Debtors

17,408

23,774

30,569

37,969

45,262

53,045

Cash

15,778

12,415

17,618

22,753

20,945

34,497

Other

0

0

727

399

399

399

Current Liabilities

 

 

(30,784)

(32,559)

(44,444)

(56,942)

(61,890)

(67,173)

Creditors

(24,305)

(30,927)

(36,436)

(56,100)

(61,093)

(66,376)

Contingent consideration

(5,733)

(1,050)

(7,122)

(45)

0

0

Short term borrowings

(746)

(582)

(886)

(797)

(797)

(797)

Long Term Liabilities

 

 

(7,506)

(6,593)

(15,940)

(16,711)

(22,711)

(18,711)

Long term borrowings

(3,643)

(3,160)

(11,499)

(8,451)

(14,451)

(10,451)

Contingent consideration

(895)

0

0

0

0

0

Other long term liabilities

(2,968)

(3,433)

(4,441)

(8,260)

(8,260)

(8,260)

Net Assets

 

 

46,134

56,401

94,183

157,752

165,364

178,109

CASH FLOW

Operating Cash Flow

 

 

11,684

13,397

16,305

31,620

25,545

31,189

Net Interest

(266)

(282)

(498)

(545)

(569)

(580)

Tax

(337)

(248)

(2,193)

(3,247)

(5,286)

(5,767)

Capex

(2,011)

(1,762)

(2,227)

(2,018)

(2,650)

(2,750)

Acquisitions/disposals

(18,672)

(12,263)

(36,840)

(70,363)

(21,245)

0

Financing

10,954

790

24,755

56,668

446

0

Dividends

(1,955)

(2,277)

(2,775)

(3,582)

(4,049)

(4,540)

Net Cash Flow

(603)

(2,645)

(3,473)

8,533

(7,809)

17,552

Opening net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(5,233)

(13,505)

(5,697)

HP finance leases initiated

0

0

0

0

0

0

Other

146

(71)

33

(261)

0

0

Closing net debt/(cash)

 

 

(11,389)

(8,673)

(5,233)

(13,505)

(5,697)

(23,249)

Source: Company data, 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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