Last close As at 06/08/2026
GBP2.22
▲ 1.00 (0.45%)
Market capitalisation
GBP508m
Research: TMT
GB Group’s H119 results confirm that it is on track to reach its targets for 10%+ organic growth and 20%+ operating margins. As previously flagged, H119 reported growth rates are skewed by the large perpetual licence signed a year ago; adjusting for this the group achieved 11% underlying organic growth and 8% adjusted operating profit growth. We maintain our revenue and profitability forecasts, with small adjustments to our net cash forecasts.
GB Group |
Executing on growth strategy |
H119 results |
Software & comp services |
27 November 2018 |
Share price performance
Business description
Next events
Analysts
GB Group is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
GB Group’s H119 results confirm that it is on track to reach its targets for 10%+ organic growth and 20%+ operating margins. As previously flagged, H119 reported growth rates are skewed by the large perpetual licence signed a year ago; adjusting for this the group achieved 11% underlying organic growth and 8% adjusted operating profit growth. We maintain our revenue and profitability forecasts, with small adjustments to our net cash forecasts.
Year end |
Revenue (£m) |
EBIT (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
03/17 |
87.5 |
17.0 |
16.5 |
9.9 |
2.4 |
44.5 |
03/18 |
119.7 |
26.3 |
25.8 |
13.5 |
2.7 |
32.6 |
03/19e |
136.4 |
27.0 |
26.4 |
13.8 |
3.0 |
31.8 |
03/20e |
161.7 |
30.9 |
30.4 |
15.6 |
3.3 |
28.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H119 results confirm 11% underlying organic growth
GBG reported revenue growth of 9% y-o-y and adjusted operating profit (AOP) decline of 16% y-o-y in H119, with an AOP margin of 15%. Adjusting for the £3.5m perpetual licence signed in H118, the group saw 14% revenue growth, of which 11% was organic. Underlying AOP increased 8% y-o-y, reflecting the investment the company is making in product and people to support organic growth plans. Reflecting typical seasonality and the inclusion of the Vix Veriify Global (VVG) acquisition from October, we would expect to see a stronger performance in H219. Management expects to achieve consensus revenue and profit expectations for FY19. We make no changes to our revenue and AOP forecasts, with a minor reduction in net cash to reflect exceptional costs incurred in FY19e.
Making progress with strategic priorities
The group made good progress in its strategy to drive global growth from the three core areas of identity verification, fraud and location intelligence while making acquisitions to bolster geographic reach, expertise, data sets and customers. The recent VVG acquisition strengthens eIDV and Loqate in Asia Pacific and adds new customers in financial services and gambling.
Valuation: Premium reflects growth opportunity
At 22.7x FY19e and 20.0x 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.
Review of H119 results
Exhibit 1: Half-year results highlights
£m |
H119 |
H118 |
Underlying H118 |
% y-o-y |
Underlying y-o-y |
Revenues |
57.3 |
52.6 |
50.3 |
8.8% |
13.9% |
Gross profit |
43.3 |
41.3 |
5.7% |
||
Gross margin |
75.6% |
78.6% |
77% |
(2.9%) |
(1.4%) |
Adjusted operating profit (AOP)* |
8.8 |
10.4 |
8.1 |
(15.8%) |
8% |
Adjusted operating margin |
15.3% |
19.8% |
16.1% |
(4.5%) |
(0.8%) |
Reported operating profit |
2.7 |
3.8 |
(28.4%) |
||
Reported operating margin |
4.7% |
7.2% |
(2.5%) |
||
Normalised dil. EPS (p) |
5.2 |
6.0 |
(13.3%0 |
||
Reported basic EPS (p) |
1.3 |
1.6 |
(18.8%) |
||
Net cash |
18.6 |
4.1 |
353.7% |
Source: GB Group. Note: *Adjusts for amortisation of acquired intangibles, share-based payments and exceptional items.
As highlighted in the recent trading update, GBG has reported revenue growth of 8.8% y-o-y for H119. Stripping out the effect of the perpetual licence signed in H118 (discussed in further detail below), and the £1.5m in revenues from the PCA Predict acquisition (a full six-month contribution versus four months a year ago), GBG generated underlying organic revenue growth of 11% y-o-y. New customers in the period included Kohl’s, Abercrombie & Fitch, Hugo Boss, Aldi, Credit Harmony, PT Bank and CMBC, highlighting the international nature of the customer base.
Gross margin of 75.6% was 2.9pp lower than a year ago, again reflecting the perpetual licence signed in H118; adjusted for this, gross margin was 1.4pp lower y-o-y. Operating costs before depreciation, amortisation, share-based payments and exceptional items were 12% higher y-o-y but essentially flat h-o-h. The company incurred exceptional costs totalling £1.0m, of which £0.9m related to acquisitions and £0.1m to staff reorganisation. Tax of £0.5m equated to an effective rate of 20% of reported PBT and 6% of adjusted PBT. The group closed H119 with a net cash balance of £18.6m, up from the £4.1m reported a year ago and £13.5m at the end of FY18. Adjusted EBITDA to operating cash flow converted at a rate of 106% compared to 92% a year ago.
Divisional results skewed by prior year perpetual licence
Exhibit 2: Divisional revenues and adjusted operating profit (£m)
Revenues |
H119 |
H118 |
y-o-y |
eIDV |
18.7 |
18.7 |
0% |
CAFS |
6.3 |
5.4 |
17% |
T&I |
5.4 |
5.0 |
10% |
E&C |
3.2 |
3.1 |
5% |
Fraud, risk and compliance |
33.6 |
32.1 |
5% |
Loqate |
19.3 |
16.5 |
17% |
Engage |
4.3 |
4.1 |
7% |
Location and customer intelligence |
23.6 |
20.6 |
15% |
Total revenues |
57.3 |
52.6 |
9% |
Adjusted operating profit (AOP)* |
|||
Fraud, risk and compliance |
5.6 |
7.7 |
-27% |
Location and customer intelligence |
4.3 |
3.4 |
26% |
Unallocated costs |
-1.1 |
-0.7 |
57% |
Group adjusted operating profit |
8.8 |
10.4 |
-15% |
Adjusted operating margin |
|||
Fraud, risk and compliance |
17% |
24% |
-7% |
Location and customer intelligence |
18% |
17% |
1% |
Group adjusted operating profit |
15% |
20% |
-5% |
Source: GB Group. Note: *Adjusts for amortisation of acquired intangibles, share-based payments and exceptional items.
The table above shows H1 divisional revenue and adjusted operating profit. As previously discussed, the £3.5m perpetual licence signed in the eIDV business in H118 resulted in flat growth year-on-year for that division in H119. Treating the perpetual licence as a more typical three-year term licence would result in underlying eIDV revenues of £16.5m in H118, equating to growth of 13% y-o-y. CAFS and T&I both saw strong double-digit organic revenue growth. Excluding the £1.5m impact from the PCA acquisition, Loqate grew 8% y-o-y – the company noted that it saw strong growth in North America and plans to expand its East Coast team. Engage has contracted in recent years, so a return to growth is welcome.
The perpetual licence similarly skewed operating profit margins for eIDV and the group as a whole, with the group seeing a 5% margin decline year-on-year. Adjusting for the licence, AOP grew 8% on an underlying basis resulting in a margin of 15.3% for H119. We note that GBG reported adjusted operating profit margins of 14% in H117 and H116 and 16% in H115, reflecting the typical seasonality of the business which tends to see a higher level of licence renewals in H2. We see H119 results as reverting back to normal seasonality.
Further progress made against strategic priorities
The company has laid out its strategic priorities for the three years to 2021. We review H1 results in the context of these priorities.
Maximise growth from “3 global big bets”
The group is focused on driving growth on a global basis from the key areas of identity verification (eIDV), fraud management (CAFS) and location intelligence (Loqate). The divisional growth rates above highlight that these were the largest contributors to growth for the group during H119 and we would expect this to continue to be the case. In eIDV, GBG is focused on providing market leading solutions in its core markets (its UVP31 proposition). For IDScan, the company has developed a digital access model for document verification, to add to its existing on-premise scanner-based solution, and added digital tampering and liveness functionality to its digital on-boarding solution. In CAFS and Loqate, GBG has hired business development staff in the US, Germany and Asia, with total new hires of 31 for the group in H119. Loqate added seven new data suppliers during H1.
Unique Value Proposition Level Three
Revenue from international customers grew 31% y-o-y to make up 36% of group revenues in H119, up from 30% in H118 and 34% for FY18.
The company noted that it is going to exit the GOV.UK Verify scheme, for which government funding will stop in March 2019. We understand that this has not contributed material profits to the group so this is likely to have limited impact on our forecasts.
Optimise growth in specialist UK businesses
The T&I, E&C and Engage businesses are UK-focused and operate in lower growth markets. Management is keen to optimise the growth from these businesses and we would expect the company to be able to continue to generate mid-single digit revenue growth from each of these business lines.
Join up GBG with the customer at the centre
Since Chris Clarke joined as CEO in April 2017, the company has shifted its focus from product to customer, making it easier for the customer to access all GBG solutions that are required from one entry point. The three businesses involved in location intelligence are now combined into the Loqate division and the Loqate brand was launched in June to unify the products.
Use M&A to enhance reach and capability
GBG acquired Vix Verify Global in October2 for £21.2m, adding further reach in Asia Pacific for identity verification and location intelligence solutions. The deal adds 400 customers and 74 employees. We expect the company to make further acquisitions, to expand functionality, expertise and geographic coverage. At the end of H119, the company had £41.1m undrawn on its credit facility. In October £10m was drawn down to fund the VVG acquisition, leaving £31.1m of group borrowing capacity for future deals to add to the post-VVG cash balance of £16.3m.
Outlook and changes to forecasts
The company expects to meet consensus revenue and profit forecasts for FY19. We make no changes to our revenue or AOP forecasts. We have revised our estimates to reflect the £1m in exceptional costs incurred in H119, an additional £0.8m in costs for H2 relating to the VVG acquisition and the £0.4m received from the issue of shares.
Exhibit 3: Changes to estimates
£m |
|
FY19e |
FY19e |
|
|
FY20e |
FY20e |
|
|
previous |
new |
change |
|
previous |
new |
change |
|
Revenues |
136,350 |
136,350 |
0.0% |
161,733 |
161,676 |
0.0% |
||
EBITA |
27,000 |
27,000 |
0.0% |
30,942 |
30,932 |
0.0% |
||
EBITA margin (%) |
19.8% |
19.8% |
19.1% |
19.1% |
||||
PBT |
26,431 |
26,431 |
0.0% |
30,362 |
30,352 |
0.0% |
||
EPS - normalised, diluted (p) |
13.8 |
13.8 |
0.0% |
15.6 |
15.6 |
(0.1%) |
||
EPS - reported (p) |
6.9 |
5.7 |
(17.4%) |
9.5 |
9.5 |
(0.1%) |
||
Net (cash)/debt |
(7,185) |
(5,697) |
-20.7% |
(24,746) |
(23,249) |
(6.1%) |
Source: Edison Investment Research
Valuation
The table below shows GBG trades compared to ID management companies, Identity Access Management software companies and more general cyber-security companies, as well as UK software peers.
Exhibit 4: Peer group financial and valuation metrics
Rev growth |
EBITDA margin |
EBIT margin |
EV/Sales |
EV/EBITDA |
P/E |
|||||||
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
Yr1 |
Yr2 |
|
GBG |
13.9% |
18.6% |
21.8% |
20.8% |
19.8% |
19.1% |
4.9 |
4.2 |
22.7 |
20.0 |
31.8 |
28.1 |
Average sub-sector: |
||||||||||||
ID Management |
8.9% |
8.0% |
18.8% |
26.0% |
13.7% |
19.9% |
3.6 |
3.6 |
34.5 |
15.2 |
20.8 |
18.3 |
Identity Access Management |
27.7% |
23.7% |
-14.3% |
-0.9% |
-20.9% |
-6.6% |
7.2 |
5.7 |
21.2 |
16.1 |
34.2 |
27.1 |
Cyber Security |
15.6% |
12.9% |
20.8% |
22.4% |
16.8% |
18.6% |
5.3 |
4.7 |
26.9 |
21.8 |
33.9 |
29.2 |
UK Software |
27.3% |
20.3% |
17.2% |
22.5% |
11.2% |
16.9% |
6.0 |
4.1 |
21.9 |
12.9 |
34.8 |
20.4 |
Source: Edison Investment Research, Thomson Eikon (as at 26 November)
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 on multiples more akin to cyber-security peers, with similar levels of profitability and growth. We believe this premium rating is warranted, considering the group’s historic track record of profitable growth and good cash generation combined with the opportunity from structural growth in identity data intelligence services. Using a reverse DCF, we estimate that the current share price is factoring in low-double digit revenue growth and EBITDA margins of 21.5%, in line with management’s targets for organic growth of 10%+ and AOP margins of 20%+. We expect management to continue to make accretive acquisitions to boost growth, which should provide further support to the share price.
Exhibit 5: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
||
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: GB Group, Edison Investment Research
|
|
Building on its positive adjusted H118 EBITDA and its partnerships, Vectura has announced three recent additional developments. Partner
Mundipharma received a positive EU opinion for flutiform (46% of H118 revenues) for the treatment of asthma in children, expanding its market from adults and adolescents. The agreement with Hikma to develop generic versions of GSK’s Ellipta brings upfront and milestone payments and ensures Vectura’s participation in the global respiratory disease market irrespective of whether generic or branded products predominate in each market. The failure of VR475 in severe uncontrolled asthma reflects more the difficulty for a non-biologic product to treat these patients.