GB Group — Strong H2 performance drives upgrades

GB Group (AIM: GBG)

Last close As at 17/07/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

More on this equity

Research: TMT

GB Group — Strong H2 performance drives upgrades

GB Group (GBG) expects to report revenue and adjusted operating profit for FY22 well ahead of our and consensus forecasts having seen a strong performance across all three divisions in H222. We have raised our forecasts to reflect this strength, with EPS upgrades of 5.4% for FY22, 1.9% for FY23 and 1.6% for FY24. In our view, there is a widening discrepancy between the company’s growth potential and its valuation.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

GB Group

Strong H2 performance drives upgrades

FY22 trading update

Software & comp services

21 April 2022

Price

570.5p

Market cap

£1,437m

$1.31:£1

Net debt (£m) at end FY22

107

Shares in issue

251.9m

Free float

95%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

(17.7)

(34.8)

Rel (local)

(4.2)

(16.9)

(39.7)

52-week high/low

952.5p

507.5p

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 18 countries, has customers in more than 70 countries and generates more than 64% of revenues internationally.

Next events

FY22 results

w/c 13 June 2022

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 and adjusted operating profit for FY22 well ahead of our and consensus forecasts having seen a strong performance across all three divisions in H222. We have raised our forecasts to reflect this strength, with EPS upgrades of 5.4% for FY22, 1.9% for FY23 and 1.6% for FY24. In our view, there is a widening discrepancy between the company’s growth potential and its valuation.

Year end

Revenue (£m)

Adj. operating profit* (£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

03/20

199.1

47.9

45.7

17.9

0.0

31.9

03/21

217.7

57.9

56.7

22.4

6.4

25.5

03/22e

242.0

58.0

56.3

20.5

3.5

27.8

03/23e

300.5

72.1

68.9

20.5

3.6

27.8

03/24e

336.7

80.7

78.1

22.8

3.7

25.1

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

H222 performance ahead of expectations

GBG expects to report FY22 revenue of £242m (versus our forecast of £234m) and adjusted operating profit of at least £58m (our forecast £55m), equating to a 24% operating margin (our forecast 23.6%). Excluding the £13m revenue contributed by Acuant (bought November 20201) and Cloudcheck (bought end January), the business saw organic constant currency revenue growth of c 10.5% in FY22. Excluding revenues related to the US stimulus programme (which made a substantial contribution in FY21 and to a lesser extent in H122), underlying revenue growth was c 15%. GBG noted that pro forma revenue for FY22 (including Acuant and Cloudcheck for 12 months) was £275m. Year-end net debt stood at £107m; the company repaid $40m of the $210m debt drawn down for the Acuant acquisition. At the time of the acquisition, GBG had identified the potential for c £5m in cost and revenue synergies combined and has already implemented £3m of this.

Upgrading estimates

GBG noted that it has limited exposure to Russia/Ukraine/Belarus (less than 0.5% of FY22 revenue). We have upgraded our forecasts to reflect the better-than-expected outturn in FY22. We also upgrade our FY23 and FY24 forecasts, factoring in revenue growth within GBG’s organic growth target of 12–14% and maintaining our 24% operating margin forecasts. This results in upgrades to our normalised diluted EPS forecasts of 5.4% for FY22, 1.9% for FY23 and 1.6% for FY24.

Valuation: Not fully capturing growth potential

GBG is trading at a small premium to identity management peers but at a discount to higher-growth, lower-profitability identity access management and cybersecurity peers. However, our reverse DCF calculates that the share price is factoring in only 4.7% revenue growth from FY25, well below the double-digit growth rate GBG has consistently achieved. Considering that Acuant is expected to grow faster than the original GBG, this appears overly conservative. Using a 12% growth rate (the lower end of management guidance) from FY25 would imply a value per share of 943p.

Changes to forecasts

Exhibit 1: Changes to forecasts

£m

FY22e

FY23e

FY24e

old

new

change

y-o-y

old

new

change

y-o-y

old

new

change

y-o-y

Revenues

234.0

242.0

3.4%

11.2%

295.7

300.5

1.6%

24.2%

332.0

336.7

1.4%

12.1%

Gross profit

168

174

3.4%

14.2%

212.9

216.4

1.6%

24.2%

239.0

242.5

1.4%

12.1%

Gross margin

72.0%

72.0%

0.0%

1.9%

72.0%

72.0%

0.0%

0.0%

72.0%

72.0%

0.0%

0.0%

EBITDA

58.8

61.7

4.8%

0.4%

74.7

76.0

1.7%

23.3%

83.6

84.8

1.4%

11.6%

EBITDA margin

25.1%

25.5%

0.3%

(2.7%)

25.3%

25.3%

0.0%

(0.2%)

25.2%

25.2%

(0.0%)

(0.1%)

Adjusted operating profit

55.1

58.0

5.2%

0.1%

70.8

72.1

1.8%

24.4%

79.5

80.7

1.5%

11.9%

Adjusted operating margin

23.6%

24.0%

0.4%

(2.6%)

24.0%

24.0%

0.0%

0.0%

24.0%

24.0%

0.0%

(0.0%)

PBT

53.5

56.3

5.3%

(0.6%)

67.6

68.9

1.9%

22.4%

76.9

78.1

1.6%

13.3%

EPS - normalised, diluted (p)

19.4

20.5

5.4%

(8.5%)

20.1

20.5

1.9%

(0.0%)

22.4

22.8

1.6%

11.1%

EPS - reported (p)

8.9

9.9

11.8%

(28.1%)

13.3

13.7

3.0%

38.5%

15.9

16.3

2.3%

18.6%

DPS (p)

3.5

3.5

0.0%

(45.3%)

3.6

3.6

0.0%

2.9%

3.7

3.7

0.0%

2.8%

Net debt/(cash)

106.6

107.4

0.8%

N/A

59.0

58.2

(1.4%)

(45.8%)

8.2

6.1

(25.6%)

(89.5%)

Net debt/EBITDA (x)

1.8

1.7

0.8

0.8

0.1

0.1

Divisional forecasts

Revenue

Identity

135.6

138.7

2.3%

8.3%

189.8

189.8

0.0%

36.9%

216.9

215.5

(0.6%)

13.5%

Location

66.2

70.4

6.3%

18.0%

71.5

75.7

5.8%

7.5%

78.0

83.3

6.8%

10.0%

Fraud

32.1

32.9

2.3%

15.6%

34.3

35.0

2.0%

6.5%

37.1

38.0

2.4%

8.5%

Group

234.0

242.0

3.4%

11.2%

295.7

300.5

1.6%

24.2%

332.0

336.7

1.4%

12.1%

Adjusted operating profit

Identity

53.8

54.9

2.0%

14.9%

68.9

68.7

(0.3%)

25.2%

78.1

77.6

(0.7%)

12.9%

Location

23.2

24.7

6.6%

26.9%

24.3

26.0

6.7%

5.0%

25.7

27.7

7.8%

6.8%

Fraud

9.6

9.9

2.3%

85.0%

10.3

10.2

(1.4%)

3.0%

10.4

10.6

2.4%

4.7%

Other

-31.5

-31.5

0.0%

-32.7

-32.7

0.0%

-34.7

-35.2

1.4%

Group

55.1

58.0

5.2%

0.1%

70.8

72.1

1.8%

24.4%

79.5

80.7

1.5%

11.9%

Adjusted operating margin

Identity

39.7%

39.6%

36.3%

36.2%

36.0%

36.0%

Location

35.0%

35.1%

34.0%

34.3%

33.0%

33.3%

Fraud

30.0%

30.0%

30.0%

29.0%

28.0%

28.0%

Group

23.6%

24.0%

24.0%

24.0%

24.0%

24.0%

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2017

2018

2019

2020

2021

2022e

2023e

2024e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

87,468

119,702

143,504

199,101

217,659

241,999

300,520

336,742

Cost of Sales

(20,302)

(27,092)

(36,060)

(54,914)

(65,096)

(67,760)

(84,146)

(94,288)

Gross Profit

67,166

92,610

107,444

144,187

152,563

174,239

216,374

242,454

EBITDA

 

 

18,734

28,741

34,080

51,739

61,410

61,650

76,016

84,814

Operating Profit (before amort. and except.)

17,006

26,311

32,031

47,945

57,896

57,966

72,126

80,741

Acquired intangible amortisation

(4,022)

(7,885)

(10,316)

(19,008)

(17,671)

(18,500)

(18,500)

(18,500)

Exceptionals

(1,410)

(2,143)

(4,003)

(1,552)

448

(5,000)

0

0

Share of associate

0

0

0

0

0

0

0

0

Share based payments

(994)

(2,375)

(2,287)

(4,541)

(5,170)

(5,687)

(6,256)

(6,881)

Operating Profit

10,580

13,908

15,425

22,844

35,503

28,779

47,370

55,360

Net Interest

(498)

(508)

(689)

(2,218)

(1,240)

(1,648)

(3,205)

(2,666)

Profit Before Tax (norm)

 

 

16,508

25,803

31,342

45,727

56,656

56,318

68,921

78,075

Profit Before Tax (FRS 3)

 

 

10,082

13,400

14,736

20,626

34,263

27,131

44,165

52,694

Tax

668

(2,746)

(2,583)

(3,562)

(7,385)

(5,848)

(9,519)

(11,358)

Profit After Tax (norm)

13,206

20,642

24,760

35,210

44,481

45,054

52,380

58,556

Profit After Tax (FRS 3)

10,750

10,654

12,153

17,064

26,878

21,283

34,646

41,336

Ave. Number of Shares Outstanding (m)

131.6

150.6

158.1

193.6

195.2

215.0

252.6

254.1

EPS - normalised (p)

 

 

10.0

13.7

15.7

18.2

22.8

21.0

20.7

23.0

EPS - normalised and fully diluted (p)

 

9.9

13.5

15.4

17.9

22.4

20.5

20.5

22.8

EPS - (IFRS) (p)

 

 

8.2

7.1

7.7

8.8

13.8

9.9

13.7

16.3

Dividend per share (p)

2.4

2.7

3.0

0.0

6.4

3.5

3.6

3.7

Gross Margin (%)

76.8

77.4

74.9

72.4

70.1

72.0

72.0

72.0

EBITDA Margin (%)

21.4

24.0

23.7

26.0

28.2

25.5

25.3

25.2

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

19.4

22.0

22.3

24.1

26.6

24.0

24.0

24.0

BALANCE SHEET

Fixed Assets

 

 

105,653

170,284

438,683

430,219

394,564

934,994

918,486

902,071

Intangible Assets

98,753

161,372

425,646

414,505

377,663

916,163

897,713

879,313

Tangible Assets

2,856

4,700

4,815

9,420

6,937

8,867

10,809

12,794

Other fixed assets

4,044

4,212

8,222

6,294

9,964

9,964

9,964

9,964

Current Assets

 

 

48,914

61,121

76,522

95,984

85,653

109,242

144,216

176,102

Debtors

30,569

37,969

54,992

66,554

58,617

65,340

81,140

90,920

Cash

17,618

22,753

21,189

27,499

21,135

38,002

57,175

79,281

Other

727

399

341

1,931

5,901

5,901

5,901

5,901

Current Liabilities

 

 

(44,444)

(56,942)

(77,030)

(86,459)

(90,000)

(102,310)

(125,712)

(140,247)

Creditors

(36,436)

(56,100)

(70,302)

(80,280)

(86,338)

(98,558)

(121,960)

(136,495)

Contingent consideration

(7,122)

(45)

(5,287)

(6,179)

(3,662)

(3,752)

(3,752)

(3,752)

Short term borrowings

(886)

(797)

(1,441)

0

0

0

0

0

Long Term Liabilities

 

 

(15,940)

(16,711)

(116,707)

(94,810)

(25,961)

(165,916)

(128,894)

(90,733)

Long term borrowings

(11,499)

(8,451)

(85,447)

(62,139)

0

(145,370)

(115,370)

(85,370)

Contingent consideration

0

0

0

0

0

0

0

0

Other long term liabilities

(4,441)

(8,260)

(31,260)

(32,671)

(25,961)

(20,545)

(13,523)

(5,362)

Net Assets

 

 

94,183

157,752

321,468

344,934

364,256

776,011

808,097

847,193

CASH FLOW

Operating Cash Flow

 

 

16,305

31,620

27,779

48,498

72,631

62,370

83,618

89,569

Net Interest

(498)

(545)

(689)

(1,768)

(1,211)

(1,641)

(3,205)

(2,666)

Tax

(2,193)

(3,247)

(2,930)

(6,386)

(14,205)

(11,264)

(16,541)

(19,519)

Capex

(2,227)

(2,018)

(1,625)

(1,339)

(738)

(3,250)

(3,400)

(3,550)

Acquisitions/disposals

(36,840)

(70,363)

(255,101)

(81)

2,545

(466,000)

0

0

Financing

24,755

56,668

157,339

(1,553)

3,476

297,635

(2,483)

(2,607)

Dividends

(2,775)

(3,582)

(4,049)

(5,761)

(5,883)

(6,677)

(8,815)

(9,121)

Net Cash Flow

(3,473)

8,533

(79,276)

31,610

56,615

(128,826)

49,174

52,106

Opening net debt/(cash)

 

 

(8,673)

(5,233)

(13,505)

65,699

34,640

(21,135)

107,369

58,195

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

33

(261)

72

(551)

(840)

322

0

0

Closing net debt/(cash)

 

 

(5,233)

(13,505)

65,699

34,640

(21,135)

107,369

58,195

6,089

Source: GB Group, 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 £60,000 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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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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Norcros — Record revenue and EBIT in FY22

Strong H2 trading – especially in South Africa – causes us to raise our Norcros FY22 estimates to new record levels. Management anticipates further progress in FY23. We make only mix changes to our EBIT forecasts beyond FY22 at this stage. Ahead of the FY22 results, valuation multiples are already attractive in our view.

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