GB Group — FY19 growth on track

GB Group (AIM: GBG)

Last close As at 23/05/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

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Research: TMT

GB Group — FY19 growth on track

GB Group’s H119 update confirmed that the business is trading in line with expectations, with underlying organic revenue growth of 11% and underlying operating profit growth of 7% compared to H118. While our underlying forecasts are unchanged, we have upgraded our estimates to reflect the recent Vix Verify Global acquisition, which results in a 2.7% increase in our normalised FY20 EPS forecast.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

GB Group

FY19 growth on track

Trading update

Software & comp services

25 October 2018

Price

510p

Market cap

£781m

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

(10.7)

(12.1)

19.2

Rel (local)

(3.8)

(2.4)

28.9

52-week high/low

626p

380p

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 approximately one-third of revenues internationally.

Next events

H119 results

27 November

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 H119 update confirmed that the business is trading in line with expectations, with underlying organic revenue growth of 11% and underlying operating profit growth of 7% compared to H118. While our underlying forecasts are unchanged, we have upgraded our estimates to reflect the recent Vix Verify Global acquisition, which results in a 2.7% increase in our normalised FY20 EPS forecast.

Year end

Revenue (£m)

EBIT

(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

03/17

87.5

17.0

16.5

9.9

2.4

51.8

03/18

119.7

26.3

25.8

13.5

2.7

37.9

03/19e

136.4

27.0

26.4

13.8

3.0

37.0

03/20e

161.7

30.9

30.4

15.6

3.3

32.6

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

H1 trading update in line with expectations

GBG’s trading update confirmed revenues of £57.2m for H119, up 9% on a reported basis but up 11% on an underlying organic basis after adjusting for the £3.5m one-off perpetual licence signed in H118. Expected adjusted operating profit of £8.7m was 16% lower than a year ago, but after adjusting for the perpetual licence in H118, was 7% higher on an underlying organic basis. Planned investments in technology and marketing are expected to have a disproportionate effect on profitability in H119 versus H219. Net cash at the end of H119 stood at £18.6m, up from the £13.5m at the end of FY18 and £4.1m at the end of H118. The company expects to meet consensus FY19 forecasts for revenue and profit.

Incorporating accretive Australian acquisition

We have incorporated the recent Vix Verify Global acquisition into our forecasts. This has minimal impact on FY19 forecasts; in FY20 it results in a 9.5% increase in our revenue forecast, a 3.3% increase in our EBITA forecast and a 2.7% increase in our normalised EPS forecast. Our end FY19 net cash forecast reduces from £28.4m to £7.2m.

Valuation: Premium reflects growth opportunity

GBG’s FY19e 26.8x EV/EBITDA and 37.0x P/E ratings are within the mix of other global companies in the identity access management and cyber security segments. While this is a considerable premium to the UK software sector, we believe it is supported by the good earnings quality and cash conversion, strong organic growth outlook and an active acquisition pipeline.

Incorporating Vix Verify Global

As described in our recent note (Scaling up down under), GBG has acquired Vix Verify Global (VVG) for $38.3m/£21.2m in cash. We make no changes to our underlying forecasts for GBG, solely upgrading forecasts on the incorporation of VVG into our estimates. FY20 is the first year to include a full 12 months of VVG – we estimate this adds c 10% to our revenue forecast. The company noted that it expected to achieve synergies during the first 12 months of ownership – we have assumed the benefit of cost synergies is not evident until H120, hence the zero impact on EBITDA in FY19. We understand that the acquired business will initially be lower margin than the group average, hence the only 3.3% increase in our FY20 EBITA forecast. We have assumed the company used a mixture of cash and debt to acquire the business and have factored in higher net finance costs. The overall effect is a 2.7% increase in our FY20 normalised EPS forecast.

Exhibit 1: Changes to estimates

£m

 

FY19e

FY19e

%

 

FY20e

FY20e

%

 

previous

new

change

 

previous

new

change

Revenues

133,350

136,350

2.2%

147,733

161,733

9.5%

EBITA

27,000

27,000

0.0%

29,962

30,942

3.3%

EBITA margin (%)

20.2%

19.8%

20.3%

19.1%

PBT

26,500

26,431

-0.3%

29,562

30,362

2.7%

EPS - normalised, diluted (p)

13.8

13.8

-0.3%

15.2

15.6

2.7%

EPS - reported (p)

6.9

6.9

-0.6%

9.1

9.5

4.7%

Net (cash)/debt

(28,440)

(7,185)

-74.7%

(45,356)

(24,746)

-45.4%

Source: Edison Investment Research

Exhibit 2: 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

161,733

Cost of Sales

(16,448)

(17,606)

(20,302)

(27,092)

(33,910)

(39,966)

Gross Profit

40,835

55,795

67,166

92,610

102,440

121,767

EBITDA

 

 

11,844

14,772

18,734

28,741

29,675

33,699

Operating Profit (before amort. and except.)

10,790

13,428

17,006

26,311

27,000

30,942

Acquired intangible amortisation

(1,986)

(2,501)

(4,022)

(7,885)

(8,100)

(7,300)

Exceptionals

(1,629)

(94)

(1,410)

(2,143)

0

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

16,400

20,892

Net Interest

(266)

(270)

(498)

(508)

(569)

(580)

Profit Before Tax (norm)

 

 

10,524

13,158

16,508

25,803

26,431

30,362

Profit Before Tax (FRS 3)

 

 

5,928

9,318

10,082

13,400

15,831

20,312

Tax

(1,127)

(178)

668

(2,746)

(5,286)

(5,769)

Profit After Tax (norm)

8,314

10,395

13,206

20,642

21,541

24,593

Profit After Tax (FRS 3)

4,801

9,140

10,750

10,654

10,545

14,543

Average Number of Shares Outstanding (m)

119.1

122.7

131.6

150.6

152.9

153.5

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

6.9

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

48,187

60,722

62,780

85,061

Debtors

17,408

23,774

30,569

37,969

44,347

53,067

Cash

15,778

12,415

17,618

22,753

18,433

31,994

Other

0

0

0

0

0

0

Current Liabilities

 

 

(30,784)

(32,559)

(44,444)

(56,942)

(61,020)

(67,240)

Creditors

(24,305)

(30,927)

(36,436)

(56,100)

(60,178)

(66,398)

Contingent consideration

(5,733)

(1,050)

(7,122)

(45)

(45)

(45)

Short term borrowings

(746)

(582)

(886)

(797)

(797)

(797)

Long Term Liabilities

 

 

(7,506)

(6,593)

(15,940)

(16,711)

(18,711)

(14,711)

Long term borrowings

(3,643)

(3,160)

(11,499)

(8,451)

(10,451)

(6,451)

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

93,456

157,353

166,408

179,163

CASH FLOW

Operating Cash Flow

 

 

11,684

13,397

16,305

31,620

27,375

31,199

Net Interest

(266)

(282)

(498)

(545)

(569)

(580)

Tax

(337)

(248)

(2,193)

(3,247)

(5,286)

(5,769)

Capex

(2,011)

(1,762)

(2,227)

(2,018)

(2,650)

(2,750)

Acquisitions/disposals

(18,672)

(12,263)

(36,840)

(70,363)

(21,200)

0

Financing

10,954

790

24,755

56,668

0

0

Dividends

(1,955)

(2,277)

(2,775)

(3,582)

(3,990)

(4,539)

Net Cash Flow

(603)

(2,645)

(3,473)

8,533

(6,320)

17,562

Opening net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(5,233)

(13,505)

(7,185)

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)

(7,185)

(24,746)

Source: GB Group, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 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.

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London +44 (0)20 3077 5700

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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

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 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.

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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