GB Group — Impressive cash generation in FY21

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 — Impressive cash generation in FY21

GB Group (GBG) expects to report revenue, adjusted operating profit and net cash ahead of consensus for FY21, with strength in the Identity and Location businesses outweighing slower business for the Fraud division. We have upgraded our FY21 forecasts to reflect this and revised our FY22 and FY23 forecasts to reflect the disposal of Employ & Comply at the start of FY22.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

GB Group

Impressive cash generation in FY21

FY21 trading update

Software & comp services

22 April 2021

Price

875.5p

Market cap

£1,719m

$1.39/£

Net cash (£m) at end FY21

21

Shares in issue

196.3m

Free float

98%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

(1.4)

33.1

Rel (local)

0.7

(4.8)

5.1

52-week high/low

954p

611p

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, GB operates across 16 countries, has customers in more than 70 countries and generates more than 56% of revenues internationally.

Next events

FY21 results

15 June

Analyst

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

GB Group (GBG) expects to report revenue, adjusted operating profit and net cash ahead of consensus for FY21, with strength in the Identity and Location businesses outweighing slower business for the Fraud division. We have upgraded our FY21 forecasts to reflect this and revised our FY22 and FY23 forecasts to reflect the disposal of Employ & Comply at the start of FY22.

Year end

Revenue (£m)

EBITA*
(£m)

PBT*
(p)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

03/19

143.5

32.0

31.3

15.4

3.0

56.9

03/20

199.1

47.9

45.7

17.9

0.0

48.9

03/21e

217.2

57.9

56.3

21.7

6.0

40.4

03/22e

206.3

46.0

44.9

17.1

3.3

51.1

03/23e

229.1

51.7

50.8

19.3

3.6

45.5

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

FY21 well ahead of consensus

GBG expects to report FY21 revenue of £217m (+9% y-o-y on both a reported and organic constant currency basis), ahead of our and consensus forecasts of £213m. The company highlighted strength in Identity; the February trading update had noted that the US stimulus programme and elevated levels of share and crypto-currency trading were key drivers of growth, more than outweighing weaker demand from COVID-19 affected customers. GBG also noted that the Location business grew well, benefiting from the increase in online retail. Adjusted operating profit of £58m (+21% y-o-y) is also ahead of our forecast of £53.2m and consensus of £53.5m, benefiting from higher revenues and the effect of deferring expenditure at the height of the pandemic. Cash generation was well ahead of our expectations, with net cash of £21m at year-end compared to our forecast for net debt of £11m, with all debt repaid prior to year-end.

Estimates revised to reflect recent disposal

We have upgraded our FY21 forecasts to reflect the expected outturn. We have removed the Employ & Comply business from our forecasts (sold 31 March), which reduces revenue by c £6m and adjusted operating profit by c £2m in FY22 and FY23. Overall, our normalised diluted EPS forecasts increase by 9.2% in FY21 and decrease by 4.2% in FY22 and 3.9% in FY23.

Valuation: Premium rating reflects growth potential

GBG trades at a premium to the UK software and IT services sectors and at the upper end of its Identity management peer group on a P/E basis, reflecting its strong growth outlook (post COVID-19), high recurring revenues and strong balance sheet. Our reverse DCF analysis estimates the current share price is factoring in operating margins of 23.9% and revenue growth of 15.6% per year from FY24, at the upper end of the group’s revenue and margin targets. Outside of faster-than-expected COVID-19 recovery, triggers for upside could include successful cross-selling from recent acquisitions, adoption of GBG’s combined identity/location solution and, in the medium term, accretive acquisitions.

Changes to forecasts

We have revised our forecasts to reflect the expected outturn for FY21. We have increased our Location revenue and margin forecasts in FY21. For FY22 and FY23, we have slightly changed the mix of Location versus Identity revenues. We have removed the Employ & Comply (E&C) business from 1 April 2021; this was previously reported within the Identity business.

Looking at the remaining businesses within GBG (ie excluding the recently disposed E&C and marketing services businesses), we expect a 1% revenue decline in FY22. Also stripping out the effect of the US stimulus programme in FY21, we forecast revenue growth of 6% in FY22.

Exhibit 1: Changes to forecasts

£m

FY21e

FY21e

 

 

FY22e

FY22e

 

 

FY23e

FY23e

 

 

old

new

change

y-o-y

old

new

change

y-o-y

old

new

change

y-o-y

Revenues

213.1

217.2

1.9%

9.1%

212.5

206.3

(2.9%)

(5.0%)

235.5

229.1

(2.7%)

11.0%

Gross profit

153.5

156.3

1.9%

8.4%

153

149

(2.9%)

(5.0%)

169.6

165.0

(2.7%)

11.0%

Gross margin

72.0%

72.0%

0.0%

(0.4%)

72.0%

72.0%

0.0%

0.0%

72.0%

72.0%

0.0%

0.0%

EBITDA

57.2

61.9

8.3%

19.7%

52.1

50.1

(3.8%)

(19.0%)

58.1

56.0

(3.5%)

11.7%

EBITDA margin

26.8%

28.5%

1.7%

2.5%

24.5%

24.3%

(0.2%)

(4.2%)

24.7%

24.4%

(0.2%)

0.1%

EBITA

53.2

57.9

8.9%

20.9%

48.0

46.0

(4.1%)

(20.6%)

53.7

51.7

(3.8%)

12.3%

EBITA margin

25.0%

26.7%

1.7%

2.6%

22.6%

22.3%

(0.3%)

(4.4%)

22.8%

22.5%

(0.3%)

0.3%

PBT

51.5

56.3

9.2%

23.1%

46.9

44.9

(4.2%)

(20.3%)

52.8

50.8

(3.9%)

13.2%

EPS - normalised, diluted (p)

19.8

21.7

9.2%

21.1%

17.9

17.1

(4.2%)

(20.9%)

20.0

19.3

(3.9%)

12.3%

EPS - reported (p)

10.7

12.6

17.3%

42.5%

8.7

7.9

(8.7%)

(37.1%)

11.1

10.3

(7.1%)

30.1%

DPS (p)

6.0

6.0

0.0%

N/A

3.3

3.3

0.0%

(45.0%)

3.6

3.6

0.0%

9.1%

Net debt/(cash)

11.1

(20.8)

N/A

N/A

(20.4)

(52.1)

154.7%

149.7%

(54.1)

(86.9)

60.5%

67.2%

Divisional forecasts

Revenue

Identity

130.2

130.3

0.1%

23.6%

126.2

115.9

(8.2%)

(11.1%)

139.9

128.8

(7.9%)

11.2%

Location

50.2

54.1

7.7%

5.0%

53.9

58.0

7.7%

7.3%

60.3

65.0

7.7%

12.0%

Fraud

30.1

30.1

0.0%

-15.1%

32.5

32.5

0.0%

7.7%

35.3

35.3

0.0%

8.8%

Group

213.1

217.2

1.9%

9.1%

212.5

206.3

(2.9%)

(5.0%)

235.5

229.1

(2.7%)

11.0%

Adjusted operating profit

Identity

45.3

47.3

4.5%

40.8%

38.2

35.1

(8.2%)

-25.8%

42.4

39.0

(7.9%)

11.2%

Location

14.3

16.8

17.5%

12.3%

15.1

16.2

7.7%

-3.2%

16.9

18.2

7.7%

12.0%

Fraud

6.7

6.9

2.7%

-48.9%

8.4

8.4

0.0%

22.9%

9.5

9.5

0.0%

13.0%

Group

53.2

57.9

8.9%

20.9%

48.0

46.0

(4.1%)

-20.6%

53.7

51.7

(3.8%)

12.3%

Adjusted operating margin

Identity

34.8%

36.3%

30.3%

30.3%

30.3%

30.3%

Location

28.4%

31.0%

28.0%

28.0%

28.0%

28.0%

Fraud

22.2%

22.8%

26.0%

26.0%

27.0%

27.0%

Group

25.0%

26.7%

22.6%

22.3%

22.8%

22.5%

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2017

2018

2019

2020

2021e

2022e

2023e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

87,468

119,702

143,504

199,101

217,151

206,345

229,115

Cost of Sales

(20,302)

(27,092)

(36,060)

(54,914)

(60,802)

(57,777)

(64,152)

Gross Profit

67,166

92,610

107,444

144,187

156,349

148,568

164,963

EBITDA

 

 

18,734

28,741

34,080

51,739

61,913

50,147

56,012

Operating Profit (before amort. and except.)

17,006

26,311

32,031

47,945

57,945

45,993

51,662

Acquired intangible amortisation

(4,022)

(7,885)

(10,316)

(19,008)

(18,900)

(18,900)

(17,900)

Exceptionals

(1,410)

(2,143)

(4,003)

(1,552)

(93)

0

0

Share of associate

0

0

0

0

0

0

0

Share based payments

(994)

(2,375)

(2,287)

(4,541)

(4,995)

(5,495)

(6,044)

Operating Profit

10,580

13,908

15,425

22,844

33,957

21,598

27,718

Net Interest

(498)

(508)

(689)

(2,218)

(1,655)

(1,105)

(855)

Profit Before Tax (norm)

 

 

16,508

25,803

31,342

45,727

56,290

44,888

50,807

Profit Before Tax (FRS 3)

 

 

10,082

13,400

14,736

20,626

32,302

20,493

26,863

Tax

668

(2,746)

(2,583)

(3,562)

(7,752)

(4,918)

(6,447)

Profit After Tax (norm)

13,206

20,642

24,760

35,210

42,781

34,115

38,614

Profit After Tax (FRS 3)

10,750

10,654

12,153

17,064

24,550

15,575

20,416

Ave. Number of Shares Outstanding (m)

131.6

150.6

158.1

193.6

195.5

197.1

198.6

EPS - normalised (p)

 

 

10.0

13.7

15.7

18.2

21.9

17.3

19.4

EPS - normalised and fully diluted (p)

 

9.9

13.5

15.4

17.9

21.7

17.1

19.3

EPS - (IFRS) (p)

 

 

8.2

7.1

7.7

8.8

12.6

7.9

10.3

Dividend per share (p)

2.4

2.7

3.0

0.0

6.0

3.3

3.6

Gross Margin (%)

76.8

77.4

74.9

72.4

72.0

72.0

72.0

EBITDA Margin (%)

21.4

24.0

23.7

26.0

28.5

24.3

24.4

Operating Margin (before GW and except.) (%)

19.4

22.0

22.3

24.1

26.7

22.3

22.5

BALANCE SHEET

Fixed Assets

 

 

105,653

170,284

438,683

430,219

410,201

392,147

374,998

Intangible Assets

98,753

161,372

425,646

414,505

390,981

371,931

353,881

Tangible Assets

2,856

4,700

4,815

9,420

9,702

10,697

11,598

Other fixed assets

4,044

4,212

8,222

6,294

9,519

9,519

9,519

Current Assets

 

 

48,914

61,121

76,522

95,984

85,267

113,391

154,870

Debtors

30,569

37,969

54,992

66,554

64,060

60,872

67,589

Cash

17,618

22,753

21,189

27,499

20,807

52,120

86,881

Other

727

399

341

1,931

400

400

400

Current Liabilities

 

 

(44,444)

(56,942)

(77,030)

(86,459)

(99,322)

(99,898)

(110,041)

Creditors

(36,436)

(56,100)

(70,302)

(80,280)

(95,119)

(95,695)

(105,838)

Contingent consideration

(7,122)

(45)

(5,287)

(6,179)

(4,203)

(4,203)

(4,203)

Short term borrowings

(886)

(797)

(1,441)

0

0

0

0

Long Term Liabilities

 

 

(15,940)

(16,711)

(116,707)

(94,810)

(26,580)

(20,725)

(14,979)

Long term borrowings

(11,499)

(8,451)

(85,447)

(62,139)

0

0

0

Contingent consideration

0

0

0

0

(458)

(458)

(458)

Other long term liabilities

(4,441)

(8,260)

(31,260)

(32,671)

(26,122)

(20,267)

(14,521)

Net Assets

 

 

94,183

157,752

321,468

344,934

369,566

384,916

404,848

CASH FLOW

Operating Cash Flow

 

 

16,305

31,620

27,779

48,498

81,370

53,911

59,438

Net Interest

(498)

(545)

(689)

(1,768)

(1,454)

(936)

(855)

Tax

(2,193)

(3,247)

(2,930)

(6,386)

(13,510)

(10,773)

(12,194)

Capex

(2,227)

(2,018)

(1,625)

(1,339)

(2,100)

(3,000)

(3,100)

Acquisitions/disposals

(36,840)

(70,363)

(255,101)

(81)

(2,089)

0

0

Financing

24,755

56,668

157,339

(1,553)

(1,037)

(2,000)

(2,000)

Dividends

(2,775)

(3,582)

(4,049)

(5,761)

(5,855)

(5,889)

(6,528)

Net Cash Flow

(3,473)

8,533

(79,276)

31,610

55,326

31,313

34,762

Opening net debt/(cash)

 

 

(8,673)

(5,233)

(13,505)

65,699

34,640

(20,807)

(52,120)

HP finance leases initiated

0

0

0

0

0

0

0

Other

33

(261)

72

(551)

121

0

0

Closing net debt/(cash)

 

 

(5,233)

(13,505)

65,699

34,640

(20,807)

(52,120)

(86,881)

Source: GB Group accounts, Edison Investment Research


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This report has been commissioned by GB Group and prepared and issued by Edison, in consideration of a fee payable by GB Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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This report has been commissioned by GB Group and prepared and issued by Edison, in consideration of a fee payable by GB Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Metals & Mining

Lepidico — Fine tuning the mine and chemical plant

Lepidico’s announcement that it has raised capital and awarded the EPCM contract for its Phase 1 Plant project to Lycopodium follows on the heels of an offtake agreement with China’s BJR and comes barely a month after it announced an expansion of its resource base in Namibia. Relative to existing hard rock resources, the resource expansion quantified high grade surface material contained in tailings, stockpiles and dumps both at Rubicon and Helikon that could potentially support operations at Karibib for an additional two years. Just a year after completing its DFS, Lepidico has now transitioned its Phase 1 Plant project into development by effectively completing permitting and approvals processes at the same time as negotiating a first offtake agreement and raising initial equity to allow it to commit to early engineering works. Concurrently, it is advancing negotiations with the US government DFC (which is now conducting confirmatory due diligence) for the provision of project debt.

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