Last close As at 05/08/2026
GBP2.22
▲ 1.00 (0.45%)
Market capitalisation
GBP508m
Research: TMT
GB Group’s trading has remained robust in H1. Backing out a £3.5m perpetual licence, underlying organic growth was 12%, consistent with our FY estimates and last year. We leave our estimates unchanged, although the perpetual licence will mean that the year will be less significantly H2 weighted than usual. A strong recurring revenue profile (c 70% in FY17), robust organic growth prospects and an accretive acquisition strategy all justify a premium rating.
Written by
GB Group |
Robust H1, short-term boost from licensing |
Trading update |
Software & comp services |
24 October 2017 |
Share price performance
Business description
Next events
Analysts
GB Group is a research client of Edison Investment Research Limited |
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GB Group’s trading has remained robust in H1. Backing out a £3.5m perpetual licence, underlying organic growth was 12%, consistent with our FY estimates and last year. We leave our estimates unchanged, although the perpetual licence will mean that the year will be less significantly H2 weighted than usual. A strong recurring revenue profile (c 70% in FY17), robust organic growth prospects and an accretive acquisition strategy all justify a premium rating.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
73.4 |
13.2 |
8.2 |
2.1 |
48.3 |
0.5 |
03/17 |
87.5 |
16.5 |
9.9 |
2.4 |
40.0 |
0.6 |
03/18e |
117.1 |
22.6 |
12.0 |
2.5 |
33.0 |
0.6 |
03/19e |
133.4 |
26.4 |
13.6 |
2.8 |
29.1 |
0.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Robust H1 performance
GB Group’s trading update flags that trading has remained robust in H1. Revenues of £52.6m are up 40% y-o-y, which factors in the contribution from PCA (acquired on 9 May 2017), a full six-month contribution from ID Scan (acquired on 9 June 2016) and a £3.5m licensing deal. Stripping out the acquisitions, the underlying organic growth rate was 17%. If we were to treat the perpetual licence as a three-year term, spreading payments across the years, the underlying growth rate would be c 12%, in line with last year and our estimates. All acquisitions – GBG DecTec, GBG Loqate, ID Scan and PCA Predict – are reported to have had strong first halves. Adjusted H1 operating profit is expected to be in excess of £10m, substantially ahead of last year’s £5.2m, leaving our FY estimates of £23.3m well supported.
Licence boosts H1, focus remains on recurring
We understand that the licensing deal was from a leading European bank, which had previously bought the product from ID Scan (pre its acquisition by GB Group) on a perpetual licence basis. Management would have preferred to sign this deal on a term basis, but the client had allocated the spend to capex and was not prepared to reverse this. Hence the full £3.5m revenue and cash will be received in H1. The company’s focus and incentive structures remain strongly weighted towards recurring revenues, which accounted for c 70% of revenues in FY17.
No estimate changes, premium valuation deserved
We are not changing our estimates. The perpetual licence underpins confidence in this year, while we believe the company has ample headroom to make up the difference in FY19. The group’s rating of 34x FY19e earnings is at a premium to other identity management groups (c 26x), but a discount to the wider internet security peer set (c 45x). We believe that the company’s recurring revenue profile, robust organic growth prospects and M&A track record all justify a healthy rating and leave room for further growth-driven share price upside.
Exhibit 1: Financial summary
£'000s |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
41,835 |
57,283 |
73,401 |
87,468 |
117,093 |
133,352 |
Cost of Sales |
(14,473) |
(16,448) |
(17,606) |
(20,302) |
(28,822) |
(32,797) |
||
Gross Profit |
27,362 |
40,835 |
55,795 |
67,166 |
88,271 |
100,554 |
||
EBITDA |
|
|
7,849 |
11,844 |
14,772 |
18,734 |
26,200 |
30,305 |
Operating Profit (before amort. and except.) |
|
7,164 |
10,790 |
13,428 |
17,006 |
23,300 |
27,000 |
|
Acquired intangible amortisation |
(1,110) |
(1,986) |
(2,501) |
(4,022) |
(3,500) |
(3,000) |
||
Exceptionals |
(1,080) |
(1,629) |
(94) |
(1,410) |
(2,200) |
0 |
||
Share of associate |
(159) |
(10) |
0 |
0 |
0 |
0 |
||
Share based payments |
(747) |
(971) |
(1,245) |
(994) |
(1,750) |
(1,699) |
||
Operating Profit |
4,068 |
6,194 |
9,588 |
10,580 |
15,850 |
22,301 |
||
Net Interest |
(79) |
(266) |
(270) |
(498) |
(750) |
(600) |
||
Profit Before Tax (norm) |
|
|
7,085 |
10,524 |
13,158 |
16,508 |
22,550 |
26,400 |
Profit Before Tax (FRS 3) |
|
|
3,989 |
5,928 |
9,318 |
10,082 |
15,100 |
21,701 |
Tax |
(474) |
(1,127) |
(178) |
668 |
(4,510) |
(5,280) |
||
Profit After Tax (norm) |
5,597 |
8,314 |
10,395 |
13,206 |
18,040 |
21,120 |
||
Profit After Tax (FRS 3) |
3,515 |
4,801 |
9,140 |
10,750 |
10,590 |
16,421 |
||
Average Number of Shares Outstanding (m) |
109.6 |
119.1 |
122.7 |
131.6 |
147.6 |
152.5 |
||
EPS - normalised (p) |
|
|
5.1 |
7.0 |
8.5 |
10.0 |
12.2 |
13.8 |
EPS - normalised and fully diluted (p) |
|
|
4.8 |
6.7 |
8.2 |
9.9 |
12.0 |
13.6 |
EPS - (IFRS) (p) |
|
|
3.2 |
4.0 |
7.4 |
8.2 |
7.2 |
10.8 |
Dividend per share (p) |
1.7 |
1.9 |
2.1 |
2.4 |
2.5 |
2.8 |
||
Gross Margin (%) |
65.4 |
71.3 |
76.0 |
76.8 |
75.4 |
75.4 |
||
EBITDA Margin (%) |
18.8 |
20.7 |
20.1 |
21.4 |
22.4 |
22.7 |
||
Operating Margin (before GW and except.) (%) |
17.1 |
18.8 |
18.3 |
19.4 |
19.9 |
20.2 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
26,985 |
51,238 |
59,364 |
105,653 |
175,953 |
172,298 |
Intangible Assets |
23,329 |
45,296 |
54,113 |
98,753 |
169,153 |
166,003 |
||
Tangible Assets |
1,519 |
2,829 |
2,234 |
2,856 |
2,756 |
2,251 |
||
Other fixed assets |
2,137 |
3,113 |
3,017 |
4,044 |
4,044 |
4,044 |
||
Current Assets |
|
|
23,775 |
33,186 |
36,189 |
48,187 |
66,455 |
85,443 |
Debtors |
11,929 |
17,408 |
23,774 |
30,569 |
47,290 |
54,493 |
||
Cash |
11,846 |
15,778 |
12,415 |
17,618 |
19,165 |
30,949 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(17,861) |
(30,784) |
(32,559) |
(44,444) |
(58,665) |
(63,568) |
Creditors |
(17,861) |
(24,305) |
(30,927) |
(36,436) |
(50,657) |
(55,560) |
||
Contingent consideration |
0 |
(5,733) |
(1,050) |
(7,122) |
(7,122) |
(7,122) |
||
Short term borrowings |
0 |
(746) |
(582) |
(886) |
(886) |
(886) |
||
Long Term Liabilities |
|
|
(2,066) |
(7,506) |
(6,593) |
(15,940) |
(23,040) |
(19,040) |
Long term borrowings |
0 |
(3,643) |
(3,160) |
(11,499) |
(18,599) |
(14,599) |
||
Contingent consideration |
0 |
(895) |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(2,066) |
(2,968) |
(3,433) |
(4,441) |
(4,441) |
(4,441) |
||
Net Assets |
|
|
30,833 |
46,134 |
56,401 |
93,456 |
160,703 |
175,132 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
9,355 |
11,684 |
13,397 |
16,305 |
21,500 |
28,005 |
Net Interest |
(79) |
(266) |
(282) |
(517) |
(750) |
(600) |
||
Tax |
65 |
(337) |
(248) |
(2,193) |
(4,510) |
(5,280) |
||
Capex |
(1,144) |
(2,011) |
(1,762) |
(2,227) |
(2,700) |
(2,650) |
||
Acquisitions/disposals |
(1,443) |
(18,672) |
(12,263) |
(36,840) |
(74,000) |
0 |
||
Financing |
416 |
10,954 |
790 |
24,755 |
58,000 |
0 |
||
Dividends |
(1,632) |
(1,955) |
(2,277) |
(2,775) |
(3,093) |
(3,691) |
||
Net Cash Flow |
5,538 |
(603) |
(2,645) |
(3,492) |
(5,553) |
15,784 |
||
Opening net debt/(cash) |
|
|
(6,308) |
(11,846) |
(11,389) |
(8,673) |
(5,233) |
320 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
146 |
(71) |
52 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(11,846) |
(11,389) |
(8,673) |
(5,233) |
320 |
(15,464) |
Source: Company data, Edison Investment Research
|
|
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A refocused business, a strengthened management team and progress with its underlying research programmes suggest Deinove is on course to generate commercial revenues in 2018. Delivery in line with our long-term forecasts would indicate a potential valuation of €4.3/share.