Currency in -
Last close As at 24/03/2023
-324.60
▲ 5.80 (1.82%)
Market capitalisation
GBP813m
GB Group’s (GBG’s) H123 trading update confirmed strong growth in its Fraud and Location businesses, offset by weaker growth in the Identity business. Pro forma revenue growth of 10% included a 6.5% currency benefit. While the board maintains its expectations for FY23, we have trimmed our forecast to reflect the weighting of growth across divisions, reducing our normalised EPS forecast by 1.7% in FY22, 1.2% in FY23 and 1.3% in FY24.
GB Group |
FY23 outlook maintained |
H123 trading update |
Software and comp services |
20 October 2022 |
Share price performance
Business description
Next events
Analyst
GB Group is a research client of Edison Investment Research Limited |
GB Group’s (GBG’s) H123 trading update confirmed strong growth in its Fraud and Location businesses, offset by weaker growth in the Identity business. Pro forma revenue growth of 10% included a 6.5% currency benefit. While the board maintains its expectations for FY23, we have trimmed our forecast to reflect the weighting of growth across divisions, reducing our normalised EPS forecast by 1.7% in FY22, 1.2% in FY23 and 1.3% in FY24.
Year end |
Revenue |
Adj. op. profit* (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
03/21 |
217.7 |
57.9 |
56.7 |
22.4 |
6.4 |
19.2 |
03/22 |
242.5 |
58.8 |
57.1 |
20.2 |
3.8 |
21.3 |
03/23e |
298.1 |
71.1 |
66.5 |
20.0 |
4.0 |
21.5 |
03/24e |
334.4 |
80.8 |
77.1 |
22.5 |
4.3 |
19.1 |
03/25e |
375.3 |
91.2 |
88.3 |
25.6 |
4.6 |
16.8 |
Note: *Adjusted operating profit, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H123: 10% pro forma revenue growth
GBG expects to report H123 revenue of £133.8m, +22.5% year-on-year. It had previously flagged that H122 included unusually high and non-repeating transaction volumes driven by the US stimulus programme and cryptocurrency trading (c £8.8m revenue) – excluding that but including pre-acquisition revenue (£21.8m), the company estimates that pro forma revenue growth was c 10% y-o-y or c 4% in constant currency. The Fraud and Location divisions both generated double-digit constant currency revenue growth. The Identity business, both organic and acquired, was affected by the reduction in cryptocurrency and ‘gig economy’ fintech customers in the Americas, with cryptocurrency revenues normalising at a lower level than expected and the impact expected to continue into H2.
Strong H2 needed to meet FY23 outlook
The board’s expectations for FY23 are unchanged, with weaker growth in Identity compensated for by the strong dollar versus sterling. GBG expects to report an H123 operating margin of c 21%; to meet our FY23 forecast of 24%, this implies a step-up in the H2 margin to c 26% (we have seen a similar weighting in non-COVID years). We have trimmed our forecasts, reflecting better growth in Fraud and Location but weaker growth in Identity.
Valuation: Lacking confidence in growth targets
The share price is down 42% year to date and is trading on a P/E of 21.5x FY23e and 19.1x FY24e, the lowest level since autumn 2019, bar the dip in March 2020. As GBG trades through H223 and gets better visibility over underlying growth and Acuant revenue synergies, it should be able to provide the market with confidence that FY23 estimates are achievable and that Acuant is delivering on its promise. Our reverse DCF implies that the share price is discounting revenue growth of c 4% from FY26, well below the double-digit growth rate GBG has consistently achieved. Using a 12% growth rate (the lower end of management guidance) from FY26 would imply a value per share of 659p.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY23e |
FY24e |
FY25e |
|||||||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
|
Revenues |
300.8 |
298.1 |
(0.9%) |
22.9% |
337.0 |
334.4 |
(0.8%) |
12.2% |
379.5 |
375.3 |
(1.1%) |
12.2% |
Gross profit |
213.5 |
211.7 |
(0.9%) |
23.1% |
239.3 |
237.5 |
(0.8%) |
12.2% |
269.5 |
266.4 |
(1.1%) |
12.2% |
Gross margin |
71.0% |
71.0% |
0.0% |
0.1% |
71.0% |
71.0% |
0.0% |
0.0% |
71.0% |
71.0% |
0.0% |
0.0% |
EBITDA |
75.8 |
74.6 |
(1.5%) |
20.0% |
85.5 |
84.6 |
(1.1%) |
13.3% |
96.2 |
95.1 |
(1.2%) |
12.4% |
EBITDA margin |
25.2% |
25.0% |
(0.2%) |
(0.6%) |
25.4% |
25.3% |
(0.1%) |
0.3% |
25.3% |
25.3% |
(0.0%) |
0.0% |
EBITA |
72.2 |
71.1 |
(1.6%) |
20.8% |
81.7 |
80.8 |
(1.1%) |
13.8% |
92.3 |
91.2 |
(1.2%) |
12.8% |
EBITA margin |
24.0% |
23.8% |
(0.2%) |
(0.4%) |
24.3% |
24.2% |
(0.1%) |
0.3% |
24.3% |
24.3% |
(0.0%) |
0.1% |
PBT |
67.7 |
66.5 |
(1.7%) |
16.6% |
78.0 |
77.1 |
(1.2%) |
15.9% |
89.4 |
88.3 |
(1.3%) |
14.4% |
EPS - normalised, diluted (p) |
20.4 |
20.0 |
(1.7%) |
(0.7%) |
22.8 |
22.5 |
(1.2%) |
12.3% |
25.9 |
25.6 |
(1.3%) |
13.8% |
EPS - reported (p) |
11.0 |
10.7 |
(3.2%) |
51.1% |
13.9 |
13.6 |
(2.0%) |
27.6% |
17.0 |
16.7 |
(2.0%) |
22.4% |
DPS (p) |
4.0 |
4.0 |
0.0% |
5.0% |
4.3 |
4.3 |
0.0% |
7.5% |
4.6 |
4.6 |
0.0% |
7.0% |
Net debt/(cash) |
68.5 |
89.5 |
30.5% |
(15.5%) |
19.3 |
41.0 |
112.7% |
(54.2%) |
(38.6) |
(15.8) |
(59.2%) |
N/A |
Net debt/EBITDA |
0.9 |
1.2 |
0.2 |
0.5 |
N/A |
N/A |
||||||
Divisional forecasts |
||||||||||||
Revenue |
||||||||||||
Identity |
195.1 |
190.6 |
(2.3%) |
33.5% |
221.3 |
216.7 |
(2.1%) |
13.7% |
252.7 |
246.3 |
(2.6%) |
13.7% |
Location |
71.0 |
72.0 |
1.4% |
8.5% |
78.1 |
79.2 |
1.4% |
10.0% |
85.9 |
87.1 |
1.4% |
10.0% |
Fraud |
34.7 |
35.6 |
2.4% |
6.7% |
37.7 |
38.6 |
2.4% |
8.5% |
40.9 |
41.9 |
2.5% |
8.6% |
Group |
300.8 |
298.1 |
(0.9%) |
22.9% |
337.0 |
334.4 |
(0.8%) |
12.2% |
379.5 |
375.3 |
(1.1%) |
12.2% |
Adjusted operating profit |
||||||||||||
Identity |
70.7 |
69.0 |
(2.4%) |
21.0% |
79.5 |
78.0 |
(1.9%) |
13.0% |
89.5 |
87.7 |
(2.0%) |
12.4% |
Location |
25.5 |
25.9 |
1.4% |
5.3% |
28.1 |
28.5 |
1.4% |
10.0% |
30.9 |
31.3 |
1.4% |
10.0% |
Fraud |
8.3 |
8.5 |
2.4% |
6.3% |
9.0 |
9.3 |
2.4% |
8.5% |
9.8 |
10.1 |
2.5% |
8.6% |
Central costs |
-32.4 |
-32.4 |
0.0% |
-34.9 |
-34.9 |
0.0% |
-37.9 |
-37.9 |
0.0% |
|||
Group |
72.2 |
71.1 |
(1.6%) |
20.8% |
81.7 |
80.8 |
(1.1%) |
13.8% |
92.3 |
91.2 |
(1.2%) |
12.8% |
Adjusted operating margin |
||||||||||||
Identity |
36.3% |
36.2% |
-0.04pp |
35.9% |
36.0% |
0.06pp |
35.4% |
35.6% |
0.19pp |
|||
Location |
36.0% |
36.0% |
0.00pp |
36.0% |
36.0% |
0.00pp |
36.0% |
36.0% |
0.00pp |
|||
Fraud |
24.0% |
24.0% |
0.00pp |
24.0% |
24.0% |
0.00pp |
24.0% |
24.0% |
0.00pp |
|||
Group |
24.0% |
23.8% |
-0.17pp |
24.3% |
24.2% |
-0.08pp |
24.3% |
24.3% |
-0.03pp |
Source: Edison Investment Research
Exhibit 2: Financial summary
£'000s |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
199,101 |
217,659 |
242,480 |
298,101 |
334,445 |
375,265 |
Cost of Sales |
(54,914) |
(65,096) |
(70,549) |
(86,449) |
(96,989) |
(108,827) |
||
Gross Profit |
144,187 |
152,563 |
171,931 |
211,652 |
237,456 |
266,438 |
||
EBITDA |
|
|
51,739 |
61,410 |
62,196 |
74,624 |
84,568 |
95,068 |
Operating Profit (before amort. and except.) |
47,945 |
57,896 |
58,839 |
71,063 |
80,841 |
91,167 |
||
Acquired intangible amortisation |
(19,008) |
(17,671) |
(24,735) |
(24,735) |
(24,735) |
(24,735) |
||
Exceptionals |
(1,552) |
448 |
(4,526) |
0 |
0 |
0 |
||
Share of associate |
0 |
0 |
0 |
0 |
0 |
0 |
||
Share based payments |
(4,541) |
(5,170) |
(6,171) |
(6,788) |
(7,467) |
(8,214) |
||
Operating Profit |
22,844 |
35,503 |
23,407 |
39,540 |
48,639 |
58,219 |
||
Net Interest |
(2,218) |
(1,240) |
(1,754) |
(4,515) |
(3,705) |
(2,895) |
||
Profit Before Tax (norm) |
|
|
45,727 |
56,656 |
57,085 |
66,548 |
77,136 |
88,272 |
Profit Before Tax (FRS 3) |
|
|
20,626 |
34,263 |
21,653 |
35,025 |
44,934 |
55,324 |
Tax |
(3,562) |
(7,385) |
(6,390) |
(8,056) |
(10,335) |
(12,724) |
||
Profit After Tax (norm) |
35,210 |
44,481 |
44,498 |
51,242 |
57,852 |
66,204 |
||
Profit After Tax (FRS 3) |
17,064 |
26,878 |
15,263 |
26,969 |
34,599 |
42,599 |
||
Ave. Number of Shares Outstanding (m) |
193.6 |
195.2 |
216.2 |
252.7 |
254.1 |
255.6 |
||
EPS - normalised (p) |
|
|
18.2 |
22.8 |
20.6 |
20.3 |
22.8 |
25.9 |
EPS - normalised and fully diluted (p) |
|
17.9 |
22.4 |
20.2 |
20.0 |
22.5 |
25.6 |
|
EPS - (IFRS) (p) |
|
|
8.8 |
13.8 |
7.1 |
10.7 |
13.6 |
16.7 |
Dividend per share (p) |
0.0 |
6.4 |
3.8 |
4.0 |
4.3 |
4.6 |
||
Gross Margin (%) |
72.4 |
70.1 |
70.9 |
71.0 |
71.0 |
71.0 |
||
EBITDA Margin (%) |
26.0 |
28.2 |
25.6 |
25.0 |
25.3 |
25.3 |
||
Operating Margin (before GW and except.) (%) |
24.1 |
26.6 |
24.3 |
23.8 |
24.2 |
24.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
430,219 |
394,564 |
1,001,090 |
978,261 |
955,520 |
942,863 |
Intangible Assets |
414,505 |
377,663 |
969,561 |
944,876 |
920,241 |
895,656 |
||
Tangible Assets |
9,420 |
6,937 |
7,343 |
9,199 |
11,093 |
13,021 |
||
Other fixed assets |
6,294 |
9,964 |
24,186 |
24,186 |
24,186 |
34,186 |
||
Current Assets |
|
|
95,984 |
85,653 |
101,017 |
128,196 |
158,572 |
198,566 |
Debtors |
66,554 |
58,617 |
69,715 |
89,430 |
100,334 |
112,580 |
||
Cash |
27,499 |
21,135 |
22,302 |
28,766 |
47,238 |
73,986 |
||
Other |
1,931 |
5,901 |
9,000 |
10,000 |
11,000 |
12,000 |
||
Current Liabilities |
|
|
(86,459) |
(90,000) |
(115,795) |
(133,235) |
(147,887) |
(164,714) |
Creditors |
(80,280) |
(86,338) |
(109,939) |
(127,379) |
(142,031) |
(158,858) |
||
Contingent consideration |
(6,179) |
(3,662) |
(5,856) |
(5,856) |
(5,856) |
(5,856) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(94,810) |
(25,961) |
(199,185) |
(181,935) |
(142,986) |
(113,642) |
Long term borrowings |
(62,139) |
0 |
(128,226) |
(118,226) |
(88,226) |
(58,226) |
||
Contingent consideration |
0 |
0 |
(1,920) |
(1,920) |
(1,920) |
(1,920) |
||
Other long term liabilities |
(32,671) |
(25,961) |
(69,039) |
(61,789) |
(52,840) |
(53,496) |
||
Net Assets |
|
|
344,934 |
364,256 |
787,127 |
791,288 |
823,219 |
863,073 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
48,498 |
72,631 |
56,256 |
71,349 |
87,317 |
98,650 |
Net Interest |
(1,768) |
(1,211) |
(1,373) |
(4,515) |
(3,705) |
(2,895) |
||
Tax |
(6,386) |
(14,205) |
(11,610) |
(15,306) |
(19,284) |
(22,068) |
||
Capex |
(1,339) |
(738) |
(1,731) |
(3,400) |
(3,550) |
(3,700) |
||
Acquisitions/disposals |
(81) |
2,545 |
(460,484) |
0 |
0 |
0 |
||
Financing |
(1,553) |
3,476 |
298,219 |
(2,067) |
(2,171) |
(2,279) |
||
Dividends |
(5,761) |
(5,883) |
(6,677) |
(9,596) |
(10,135) |
(10,959) |
||
Net Cash Flow |
31,610 |
56,615 |
(127,400) |
36,464 |
48,472 |
56,748 |
||
Opening net debt/(cash) |
|
|
65,699 |
34,640 |
(21,135) |
105,924 |
89,460 |
40,988 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(551) |
(840) |
341 |
(20,000) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
34,640 |
(21,135) |
105,924 |
89,460 |
40,988 |
(15,760) |
Source: GB Group, Edison Investment Research
|
|
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