Last close As at 05/08/2026
GBP2.22
▲ 1.00 (0.45%)
Market capitalisation
GBP508m
Research: TMT
GB Group
Written by
GB Group |
A slower ramp for GOV.UK Verify |
Trading update |
Software & comp services |
20 October 2016 |
Share price performance
Business description
Next events
Analysts
GB Group is a research client of Edison Investment Research Limited |
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Underlying trading was solid in H116. However the new GOV.UK Verify service is behind plan and we are pairing back our revenue estimates to reflect a slower ramp. Outperformance and deferred investment elsewhere mitigates the earnings impact of this in FY16, but we reduce EPS forecasts by 5% in FY17 and FY18. The business remains very well placed, but we believe that a period of share price consolidation is likely ahead of the transition to the new CEO, Chris Clark (ex-Experian) in April 2017.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/15 |
57.3 |
10.5 |
6.7 |
1.9 |
41.9 |
0.7 |
03/16 |
73.4 |
13.2 |
8.2 |
2.1 |
34.1 |
0.7 |
03/17e |
89.0 |
15.9 |
9.4 |
2.2 |
29.9 |
0.8 |
03/18e |
105.0 |
19.0 |
10.6 |
2.5 |
26.5 |
0.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Chris Clark appointed CEO from April 2017
On 13 October, GBG announced the appointment of Chris Clark as CEO, replacing Richard Law, who announced his planned retirement in April. Clark will join from Experian (a customer and competitor of GBG’s) where he was MD of the UK, Ireland and EMEA division, before which he worked for 20 years at BT running various international technology-based businesses. He will join on 1 April 2017 and Law will remain at GBG to ensure a smooth handover.
Solid trading, although GOV.UK Verify behind plan
The H1 trading update indicates first half revenues of £37.5m, up 16% y-o-y, with organic growth of 9%. Operating profit is expected to be at least £5m (+11% y-o-y), a 13.3% margin, slightly down on last year’s 13.9%, reflecting the integration of the loss-making Loqate (acquired in April 2015) and investment into its the GOV.UK Verify platform. While this is a solid performance, particularly in the context of the strong basis of comparison (18% revenue growth in H115), the GOV.UK Verify project is considerably behind plan. We reduce our revenue estimates by c 5% across the forecast period, and make a similar adjustment to EPS forecasts in FY18e and FY19e. In the current year, outperformance and deferred investment elsewhere in the business should mitigate the impact of the shortfall in revenues on earnings and make little change to our FY16 EPS forecast.
Valuation: Priced for ongoing growth
Following today’s fall, GBG trades on a calendarised P/E of 30x FY17e and 27x FY18e. While at a premium to its peer average, when taking into account the revenue growth profile of GBG this is fairly consistent with the wider identity verification and cyber security peer set. The shares lack a short term upside catalyst, but the company remains well placed and with the prospect of further earnings-accretive acquisitions, we believe there is potential for the shares to resume their upwards trajectory in the medium term.
Exhibit 1: Summary forecast changes
£000s |
2017e |
|
2018e |
|
2019e |
||||||
Previous |
New |
Change (%) |
|
Previous |
New |
Change (%) |
|
Previous |
New |
Change (%) |
|
Revenues |
94,100 |
89,000 |
(5.4) |
110,225 |
105,000 |
(4.7) |
124,740 |
118,125 |
(5.3) |
||
EBITA |
16,650 |
16,574 |
(0.5) |
20,568 |
19,600 |
(4.7) |
23,942 |
22,900 |
(4.4) |
||
PBT |
15,994 |
15,917 |
(0.5) |
19,976 |
19,008 |
(4.8) |
23,350 |
22,308 |
(4.5) |
||
EPS - normalised, fd (p) |
9.4 |
9.4 |
(0.5) |
11.1 |
10.6 |
(4.8) |
12.7 |
12.1 |
(4.5) |
||
EPS - reported |
5.6 |
5.5 |
(0.8) |
8.5 |
8.0 |
(6.7) |
10.5 |
9.9 |
(5.8) |
||
Source: Edison Investment Research
Exhibit 2: Financial summary
£'000s |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
41,835 |
57,283 |
73,401 |
89,000 |
105,000 |
118,125 |
Cost of Sales |
(14,473) |
(16,448) |
(17,606) |
(20,888) |
(17,246) |
(18,553) |
||
Gross Profit |
27,362 |
40,835 |
55,795 |
68,112 |
87,754 |
99,572 |
||
EBITDA |
|
|
7,849 |
11,844 |
14,772 |
18,774 |
22,300 |
25,975 |
Operating Profit (before amort. and except.) |
7,164 |
10,790 |
13,428 |
16,574 |
19,600 |
22,900 |
||
Acquired intangible amortisation |
(1,110) |
(1,986) |
(2,501) |
(2,540) |
(2,540) |
(2,540) |
||
Exceptionals |
(1,080) |
(1,629) |
(94) |
(1,200) |
0 |
0 |
||
Share of associate |
(159) |
(10) |
0 |
0 |
0 |
0 |
||
Share based payments |
(747) |
(971) |
(1,245) |
(1,600) |
(1,700) |
(1,699) |
||
Operating Profit |
4,068 |
6,194 |
9,588 |
11,234 |
15,360 |
18,661 |
||
Net Interest |
(79) |
(266) |
(270) |
(657) |
(592) |
(592) |
||
Profit Before Tax (norm) |
|
|
7,085 |
10,524 |
13,158 |
15,917 |
19,008 |
22,308 |
Profit Before Tax (FRS 3) |
|
|
3,989 |
5,928 |
9,318 |
10,577 |
14,768 |
18,069 |
Tax |
(474) |
(1,127) |
(178) |
(3,502) |
(4,182) |
(4,908) |
||
Profit After Tax (norm) |
5,597 |
8,314 |
10,395 |
12,416 |
14,636 |
16,954 |
||
Profit After Tax (FRS 3) |
3,515 |
4,801 |
9,140 |
7,076 |
10,586 |
13,161 |
||
Average Number of Shares Outstanding (m) |
109.6 |
119.1 |
122.7 |
127.8 |
133.0 |
133.6 |
||
EPS - normalised (p) |
|
|
5.1 |
7.0 |
8.5 |
9.7 |
11.0 |
12.7 |
EPS - normalised and fully diluted (p) |
|
4.8 |
6.7 |
8.2 |
9.4 |
10.6 |
12.1 |
|
EPS - (IFRS) (p) |
|
|
3.2 |
4.0 |
7.4 |
5.5 |
8.0 |
9.9 |
Dividend per share (p) |
1.7 |
1.9 |
2.1 |
2.2 |
2.5 |
2.8 |
||
Gross Margin (%) |
65.4 |
71.3 |
76.0 |
76.5 |
83.6 |
84.3 |
||
EBITDA Margin (%) |
18.8 |
20.7 |
20.1 |
21.1 |
21.2 |
22.0 |
||
Operating Margin (before GW and except.) (%) |
17.1 |
18.8 |
18.3 |
18.6 |
18.7 |
19.4 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
26,985 |
51,238 |
59,364 |
94,424 |
99,484 |
96,319 |
Intangible Assets |
23,329 |
45,296 |
54,113 |
88,573 |
93,883 |
91,193 |
||
Tangible Assets |
1,519 |
2,829 |
2,234 |
2,834 |
2,584 |
2,109 |
||
Other fixed assets |
2,137 |
3,113 |
3,017 |
3,017 |
3,017 |
3,017 |
||
Current Assets |
|
|
23,775 |
33,186 |
36,189 |
52,471 |
59,200 |
78,879 |
Debtors |
11,929 |
17,408 |
23,774 |
35,536 |
43,251 |
50,663 |
||
Cash |
11,846 |
15,778 |
12,415 |
16,935 |
15,949 |
28,216 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(17,861) |
(30,784) |
(32,559) |
(41,621) |
(46,836) |
(51,748) |
Creditors |
(17,861) |
(24,305) |
(30,927) |
(39,989) |
(45,204) |
(50,116) |
||
Contingent consideration |
0 |
(5,733) |
(1,050) |
(1,050) |
(1,050) |
(1,050) |
||
Short term borrowings |
0 |
(746) |
(582) |
(582) |
(582) |
(582) |
||
Long Term Liabilities |
|
|
(2,066) |
(7,506) |
(6,593) |
(17,751) |
(14,851) |
(14,851) |
Long term borrowings |
0 |
(3,643) |
(3,160) |
(14,318) |
(11,418) |
(11,418) |
||
Contingent consideration |
0 |
(895) |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(2,066) |
(2,968) |
(3,433) |
(3,433) |
(3,433) |
(3,433) |
||
Net Assets |
|
|
30,833 |
46,134 |
56,401 |
87,523 |
96,997 |
108,599 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
9,355 |
11,684 |
13,397 |
14,874 |
19,800 |
23,475 |
Net Interest |
(79) |
(266) |
(282) |
(657) |
(592) |
(592) |
||
Tax |
65 |
(337) |
(248) |
(3,502) |
(4,182) |
(4,908) |
||
Capex |
(1,144) |
(2,011) |
(1,762) |
(2,700) |
(2,300) |
(2,450) |
||
Acquisitions/disposals |
(1,443) |
(18,672) |
(12,263) |
(37,100) |
(8,000) |
0 |
||
Financing |
416 |
10,954 |
790 |
25,000 |
0 |
0 |
||
Dividends |
(1,632) |
(1,955) |
(2,277) |
(2,553) |
(2,812) |
(3,258) |
||
Net Cash Flow |
5,538 |
(603) |
(2,645) |
(6,638) |
1,914 |
12,267 |
||
Opening net debt/(cash) |
|
|
(6,308) |
(11,846) |
(11,389) |
(8,673) |
(2,035) |
(3,949) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
146 |
(71) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(11,846) |
(11,389) |
(8,673) |
(2,035) |
(3,949) |
(16,216) |
Source: GB Group (historics), Edison Investment Research (forecasts)
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