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GBP508m
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GB Group
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GB Group |
CEO to retire; leaves GBG in good shape |
Forecast update |
Software & comp services |
20 April 2016 |
Share price performance
Business description
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GB Group is a research client of Edison Investment Research Limited |
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GB Group’s (GBG) CEO Richard Law has announced his intention to retire. He will remain at GBG for as long as required to ensure a smooth transition to a new CEO once appointed. He will be leaving the group in good shape; 27% of revenues are now from the strategically important international markets and the year-end trading update points to strong momentum, with FY16 EBITA 11% ahead of our forecasts.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/15 |
57.3 |
10.5 |
6.7 |
1.9 |
43.1 |
0.6 |
03/16e |
76.0 |
13.1 |
8.2 |
2.0 |
35.3 |
0.7 |
03/17e |
89.0 |
14.6 |
9.0 |
2.2 |
31.9 |
0.8 |
03/18e |
98.0 |
17.3 |
10.3 |
2.4 |
27.9 |
0.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Momentum continues, underlying margins strong
GBG reports continued strong growth and FY16 EBITA of £13.4m, ahead of our forecast of £12.1m and up 24% on last year. Net cash of £8.7m was also stronger than forecast (£3.8m). This outperformance has been driven by a strong contribution from the strategically important international revenues (now 27% of group revenues) and management’s focus on bringing Loqate (acquired in April 2015) to break even –achieved a year earlier than anticipated. Maintaining EBITA margins close to last year’s level is all the more impressive in light of the additional £3.4m investment in the GOV.UK Verify project, which was absorbed in operating expenses.
Deferred revenues, £13.8m, are up 40% y-o-y, in part due to the acquisitions but also suggesting a continued strong trading outlook, as assumed in our FY17 forecasts, which we leave unchanged.
CEO Richard Law plans to retire
Richard Law, the group’s longstanding CEO, has announced his plans to retire. Richard joined GBG in 1995, has been CEO since 2001 and has played a major role in shaping GBG into the international identity data firm that it is today. He will continue in his role until a successor has been appointed and will support the subsequent transition to a new CEO.
Valuation: Reflects a strong track record and outlook
The consistency of GBG’s strong performance continues to impress and we believe the FY17e P/E of 31.9x, while full, is appropriate for a growth company with good momentum, a strong cash conversion and an excellent track record in creating value from its acquisitions.
Exhibit 1: Summary forecast changes
|
EPS (p) |
PBT (£m) |
EBITDA (£m) |
||||||
|
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
2016e |
7.3 |
8.2 |
12 |
11.8 |
13.1 |
11 |
13.4 |
14.7 |
10 |
2017e |
9.0 |
9.0 |
0 |
14.6 |
14.6 |
0 |
16.3 |
16.3 |
0 |
2018e |
10.3 |
10.3 |
0 |
17.3 |
17.3 |
0 |
19.2 |
19.2 |
0 |
Source: Edison
Exhibit 2: Financial summary
£'000s |
2014 |
2015 |
2016e |
2017e |
2018e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
41,835 |
57,283 |
76,000 |
89,000 |
97,988 |
Cost of Sales |
(14,473) |
(16,448) |
(21,100) |
(24,400) |
(26,609) |
||
Gross Profit |
27,362 |
40,835 |
54,900 |
64,600 |
71,378 |
||
EBITDA |
|
|
7,849 |
11,844 |
14,720 |
16,340 |
19,185 |
Operating Profit (before amort. and except.) |
7,164 |
10,790 |
13,400 |
14,940 |
17,613 |
||
Acquired intangible amortisation |
(1,110) |
(1,986) |
(2,340) |
(2,540) |
(2,540) |
||
Exceptionals |
(1,080) |
(1,629) |
(21) |
0 |
0 |
||
Share of associate |
(159) |
(10) |
0 |
0 |
0 |
||
Share based payments |
(747) |
(971) |
(1,500) |
(1,600) |
(1,700) |
||
Operating Profit |
4,068 |
6,194 |
9,539 |
10,800 |
13,373 |
||
Net Interest |
(79) |
(266) |
(300) |
(300) |
(300) |
||
Profit Before Tax (norm) |
|
|
7,085 |
10,524 |
13,100 |
14,640 |
17,313 |
Profit Before Tax (FRS 3) |
|
|
3,989 |
5,928 |
9,239 |
10,500 |
13,073 |
Tax |
(474) |
(1,127) |
(2,100) |
(2,900) |
(3,982) |
||
Profit After Tax (norm) |
5,597 |
8,314 |
10,349 |
11,566 |
13,331 |
||
Profit After Tax (FRS 3) |
3,515 |
4,801 |
7,139 |
7,600 |
9,091 |
||
Average Number of Shares Outstanding (m) |
109.6 |
119.1 |
122.6 |
123.3 |
124.0 |
||
EPS - normalised (p) |
|
|
5.1 |
7.0 |
8.4 |
9.4 |
10.7 |
EPS - normalised and fully diluted (p) |
|
4.8 |
6.7 |
8.2 |
9.0 |
10.3 |
|
EPS - (IFRS) (p) |
|
|
3.2 |
4.0 |
5.8 |
6.2 |
7.3 |
Dividend per share (p) |
1.7 |
1.9 |
2.0 |
2.2 |
2.4 |
||
Gross Margin (%) |
65.4 |
71.3 |
72.2 |
72.6 |
72.8 |
||
EBITDA Margin (%) |
18.8 |
20.7 |
19.4 |
18.4 |
19.6 |
||
Operating Margin (before GW and except.) (%) |
17.1 |
18.8 |
17.6 |
16.8 |
18.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
26,985 |
51,238 |
64,528 |
63,688 |
61,875 |
Intangible Assets |
23,329 |
45,296 |
57,706 |
56,016 |
53,326 |
||
Tangible Assets |
1,519 |
2,829 |
3,709 |
4,559 |
5,436 |
||
Other fixed assets |
2,137 |
3,113 |
3,113 |
3,113 |
3,113 |
||
Current Assets |
|
|
23,775 |
33,186 |
29,654 |
42,688 |
55,144 |
Debtors |
11,929 |
17,408 |
17,358 |
22,854 |
26,142 |
||
Cash |
11,846 |
15,778 |
12,296 |
19,834 |
29,002 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(17,861) |
(30,784) |
(33,384) |
(38,080) |
(40,646) |
Creditors |
(17,861) |
(24,305) |
(26,905) |
(31,601) |
(34,167) |
||
Contingent consideration |
0 |
(5,733) |
(5,733) |
(5,733) |
(5,733) |
||
Short term borrowings |
0 |
(746) |
(746) |
(746) |
(746) |
||
Long Term Liabilities |
|
|
(2,066) |
(7,506) |
(7,817) |
(8,567) |
(8,567) |
Long term borrowings |
0 |
(3,643) |
(2,854) |
(2,154) |
(2,154) |
||
Contingent consideration |
0 |
(895) |
(895) |
(895) |
(895) |
||
Other long term liabilities |
(2,066) |
(2,968) |
(4,068) |
(5,518) |
(5,518) |
||
Net Assets |
|
|
30,833 |
46,134 |
52,981 |
59,729 |
67,806 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
9,355 |
11,684 |
17,349 |
15,540 |
18,464 |
Net Interest |
(79) |
(266) |
(300) |
(300) |
(300) |
||
Tax |
65 |
(337) |
(1,000) |
(1,450) |
(3,982) |
||
Capex |
(1,144) |
(2,011) |
(2,050) |
(2,100) |
(2,300) |
||
Acquisitions/disposals |
(1,443) |
(18,672) |
(14,900) |
(1,000) |
0 |
||
Financing |
416 |
10,954 |
412 |
0 |
0 |
||
Dividends |
(1,632) |
(1,955) |
(2,204) |
(2,452) |
(2,713) |
||
Net Cash Flow |
5,538 |
(603) |
(2,693) |
8,238 |
9,168 |
||
Opening net debt/(cash) |
|
|
(6,308) |
(11,846) |
(11,389) |
(8,696) |
(16,934) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
146 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(11,846) |
(11,389) |
(8,696) |
(16,934) |
(26,102) |
Source: GB Group report and accounts (historical), Edison Investment Research (estimates)
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