GB Group — Robust H1, short-term boost from licensing

GB Group (AIM: GBG)

Last close As at 17/04/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

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Research: TMT

GB Group — Robust H1, short-term boost from licensing

GB Group’s trading has remained robust in H1. Backing out a £3.5m perpetual licence, underlying organic growth was 12%, consistent with our FY estimates and last year. We leave our estimates unchanged, although the perpetual licence will mean that the year will be less significantly H2 weighted than usual. A strong recurring revenue profile (c 70% in FY17), robust organic growth prospects and an accretive acquisition strategy all justify a premium rating.

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TMT

GB Group

Robust H1, short-term boost from licensing

Trading update

Software & comp services

24 October 2017

Price

395.75p

Market cap

£604m

Net cash (£m) at 31 March 2017

5.2

Shares in issue

152.4m

Free float

97%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.6

12.8

60.4

Rel (local)

10.3

11.4

48.1

52-week high/low

406p

215p

Business description

GB Group (GBG) has complementary identity data intelligence offerings of verification, capture, maintenance and analysis, enabling companies to identify and understand their customers.

Next events

H1 results

28 November 2017

Analysts

Dan Ridsdale

+44 (0)20 3077 5729

Bridie Barrett

+44 (0)20 3077 5700

GB Group is a research client of Edison Investment Research Limited

GB Group’s trading has remained robust in H1. Backing out a £3.5m perpetual licence, underlying organic growth was 12%, consistent with our FY estimates and last year. We leave our estimates unchanged, although the perpetual licence will mean that the year will be less significantly H2 weighted than usual. A strong recurring revenue profile (c 70% in FY17), robust organic growth prospects and an accretive acquisition strategy all justify a premium rating.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

73.4

13.2

8.2

2.1

48.3

0.5

03/17

87.5

16.5

9.9

2.4

40.0

0.6

03/18e

117.1

22.6

12.0

2.5

33.0

0.6

03/19e

133.4

26.4

13.6

2.8

29.1

0.7

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

Robust H1 performance

GB Group’s trading update flags that trading has remained robust in H1. Revenues of £52.6m are up 40% y-o-y, which factors in the contribution from PCA (acquired on 9 May 2017), a full six-month contribution from ID Scan (acquired on 9 June 2016) and a £3.5m licensing deal. Stripping out the acquisitions, the underlying organic growth rate was 17%. If we were to treat the perpetual licence as a three-year term, spreading payments across the years, the underlying growth rate would be c 12%, in line with last year and our estimates. All acquisitions – GBG DecTec, GBG Loqate, ID Scan and PCA Predict – are reported to have had strong first halves. Adjusted H1 operating profit is expected to be in excess of £10m, substantially ahead of last year’s £5.2m, leaving our FY estimates of £23.3m well supported.

Licence boosts H1, focus remains on recurring

We understand that the licensing deal was from a leading European bank, which had previously bought the product from ID Scan (pre its acquisition by GB Group) on a perpetual licence basis. Management would have preferred to sign this deal on a term basis, but the client had allocated the spend to capex and was not prepared to reverse this. Hence the full £3.5m revenue and cash will be received in H1. The company’s focus and incentive structures remain strongly weighted towards recurring revenues, which accounted for c 70% of revenues in FY17.

No estimate changes, premium valuation deserved

We are not changing our estimates. The perpetual licence underpins confidence in this year, while we believe the company has ample headroom to make up the difference in FY19. The group’s rating of 34x FY19e earnings is at a premium to other identity management groups (c 26x), but a discount to the wider internet security peer set (c 45x). We believe that the company’s recurring revenue profile, robust organic growth prospects and M&A track record all justify a healthy rating and leave room for further growth-driven share price upside.

Exhibit 1: Financial summary

£'000s

2014

2015

2016

2017

2018e

2019e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

41,835

57,283

73,401

87,468

117,093

133,352

Cost of Sales

(14,473)

(16,448)

(17,606)

(20,302)

(28,822)

(32,797)

Gross Profit

27,362

40,835

55,795

67,166

88,271

100,554

EBITDA

 

 

7,849

11,844

14,772

18,734

26,200

30,305

Operating Profit (before amort. and except.)

 

7,164

10,790

13,428

17,006

23,300

27,000

Acquired intangible amortisation

(1,110)

(1,986)

(2,501)

(4,022)

(3,500)

(3,000)

Exceptionals

(1,080)

(1,629)

(94)

(1,410)

(2,200)

0

Share of associate

(159)

(10)

0

0

0

0

Share based payments

(747)

(971)

(1,245)

(994)

(1,750)

(1,699)

Operating Profit

4,068

6,194

9,588

10,580

15,850

22,301

Net Interest

(79)

(266)

(270)

(498)

(750)

(600)

Profit Before Tax (norm)

 

 

7,085

10,524

13,158

16,508

22,550

26,400

Profit Before Tax (FRS 3)

 

 

3,989

5,928

9,318

10,082

15,100

21,701

Tax

(474)

(1,127)

(178)

668

(4,510)

(5,280)

Profit After Tax (norm)

5,597

8,314

10,395

13,206

18,040

21,120

Profit After Tax (FRS 3)

3,515

4,801

9,140

10,750

10,590

16,421

Average Number of Shares Outstanding (m)

109.6

119.1

122.7

131.6

147.6

152.5

EPS - normalised (p)

 

 

5.1

7.0

8.5

10.0

12.2

13.8

EPS - normalised and fully diluted (p)

 

 

4.8

6.7

8.2

9.9

12.0

13.6

EPS - (IFRS) (p)

 

 

3.2

4.0

7.4

8.2

7.2

10.8

Dividend per share (p)

1.7

1.9

2.1

2.4

2.5

2.8

Gross Margin (%)

65.4

71.3

76.0

76.8

75.4

75.4

EBITDA Margin (%)

18.8

20.7

20.1

21.4

22.4

22.7

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

17.1

18.8

18.3

19.4

19.9

20.2

BALANCE SHEET

Fixed Assets

 

 

26,985

51,238

59,364

105,653

175,953

172,298

Intangible Assets

23,329

45,296

54,113

98,753

169,153

166,003

Tangible Assets

1,519

2,829

2,234

2,856

2,756

2,251

Other fixed assets

2,137

3,113

3,017

4,044

4,044

4,044

Current Assets

 

 

23,775

33,186

36,189

48,187

66,455

85,443

Debtors

11,929

17,408

23,774

30,569

47,290

54,493

Cash

11,846

15,778

12,415

17,618

19,165

30,949

Other

0

0

0

0

0

0

Current Liabilities

 

 

(17,861)

(30,784)

(32,559)

(44,444)

(58,665)

(63,568)

Creditors

(17,861)

(24,305)

(30,927)

(36,436)

(50,657)

(55,560)

Contingent consideration

0

(5,733)

(1,050)

(7,122)

(7,122)

(7,122)

Short term borrowings

0

(746)

(582)

(886)

(886)

(886)

Long Term Liabilities

 

 

(2,066)

(7,506)

(6,593)

(15,940)

(23,040)

(19,040)

Long term borrowings

0

(3,643)

(3,160)

(11,499)

(18,599)

(14,599)

Contingent consideration

0

(895)

0

0

0

0

Other long term liabilities

(2,066)

(2,968)

(3,433)

(4,441)

(4,441)

(4,441)

Net Assets

 

 

30,833

46,134

56,401

93,456

160,703

175,132

CASH FLOW

Operating Cash Flow

 

 

9,355

11,684

13,397

16,305

21,500

28,005

Net Interest

(79)

(266)

(282)

(517)

(750)

(600)

Tax

65

(337)

(248)

(2,193)

(4,510)

(5,280)

Capex

(1,144)

(2,011)

(1,762)

(2,227)

(2,700)

(2,650)

Acquisitions/disposals

(1,443)

(18,672)

(12,263)

(36,840)

(74,000)

0

Financing

416

10,954

790

24,755

58,000

0

Dividends

(1,632)

(1,955)

(2,277)

(2,775)

(3,093)

(3,691)

Net Cash Flow

5,538

(603)

(2,645)

(3,492)

(5,553)

15,784

Opening net debt/(cash)

 

 

(6,308)

(11,846)

(11,389)

(8,673)

(5,233)

320

HP finance leases initiated

0

0

0

0

0

0

Other

0

146

(71)

52

0

0

Closing net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(5,233)

320

(15,464)

Source: Company data, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GB Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GB Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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