GB Group — FY23 outlook maintained

GB Group (AIM: GBG)

Last close As at 21/12/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

More on this equity

GB Group — FY23 outlook maintained

GB Group’s (GBG’s) H123 trading update confirmed strong growth in its Fraud and Location businesses, offset by weaker growth in the Identity business. Pro forma revenue growth of 10% included a 6.5% currency benefit. While the board maintains its expectations for FY23, we have trimmed our forecast to reflect the weighting of growth across divisions, reducing our normalised EPS forecast by 1.7% in FY22, 1.2% in FY23 and 1.3% in FY24.

Katherine Thompson

Written by

Katherine Thompson

Director

GB Group

FY23 outlook maintained

H123 trading update

Software and comp services

20 October 2022

Price

430.8p

Market cap

£1,087m

$1.12:£1

Net debt (£m) at end H123

132.6

Shares in issue

252.3m

Free float

94%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(27.0)

(2.3)

(53.4)

Rel (local)

(23.1)

4.0

(49.2)

52-week high/low

921p

386p

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 are used across a range of fraud, risk management, compliance and customer on-boarding services. With headquarters in the UK, GB operates across 17 countries, has customers in more than 70 countries and generates more than 64% of revenues internationally.

Next events

H123 results

29 November 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

GB Group’s (GBG’s) H123 trading update confirmed strong growth in its Fraud and Location businesses, offset by weaker growth in the Identity business. Pro forma revenue growth of 10% included a 6.5% currency benefit. While the board maintains its expectations for FY23, we have trimmed our forecast to reflect the weighting of growth across divisions, reducing our normalised EPS forecast by 1.7% in FY22, 1.2% in FY23 and 1.3% in FY24.

Year end

Revenue
(£m)

Adj. op. profit* (£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

03/21

217.7

57.9

56.7

22.4

6.4

19.2

03/22

242.5

58.8

57.1

20.2

3.8

21.3

03/23e

298.1

71.1

66.5

20.0

4.0

21.5

03/24e

334.4

80.8

77.1

22.5

4.3

19.1

03/25e

375.3

91.2

88.3

25.6

4.6

16.8

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

H123: 10% pro forma revenue growth

GBG expects to report H123 revenue of £133.8m, +22.5% year-on-year. It had previously flagged that H122 included unusually high and non-repeating transaction volumes driven by the US stimulus programme and cryptocurrency trading (c £8.8m revenue) – excluding that but including pre-acquisition revenue (£21.8m), the company estimates that pro forma revenue growth was c 10% y-o-y or c 4% in constant currency. The Fraud and Location divisions both generated double-digit constant currency revenue growth. The Identity business, both organic and acquired, was affected by the reduction in cryptocurrency and ‘gig economy’ fintech customers in the Americas, with cryptocurrency revenues normalising at a lower level than expected and the impact expected to continue into H2.

Strong H2 needed to meet FY23 outlook

The board’s expectations for FY23 are unchanged, with weaker growth in Identity compensated for by the strong dollar versus sterling. GBG expects to report an H123 operating margin of c 21%; to meet our FY23 forecast of 24%, this implies a step-up in the H2 margin to c 26% (we have seen a similar weighting in non-COVID years). We have trimmed our forecasts, reflecting better growth in Fraud and Location but weaker growth in Identity.

Valuation: Lacking confidence in growth targets

The share price is down 42% year to date and is trading on a P/E of 21.5x FY23e and 19.1x FY24e, the lowest level since autumn 2019, bar the dip in March 2020. As GBG trades through H223 and gets better visibility over underlying growth and Acuant revenue synergies, it should be able to provide the market with confidence that FY23 estimates are achievable and that Acuant is delivering on its promise. Our reverse DCF implies that the share price is discounting revenue growth of c 4% from FY26, well below the double-digit growth rate GBG has consistently achieved. Using a 12% growth rate (the lower end of management guidance) from FY26 would imply a value per share of 659p.

Changes to forecasts

Exhibit 1: Changes to forecasts

£m

FY23e

FY24e

FY25e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

300.8

298.1

(0.9%)

22.9%

337.0

334.4

(0.8%)

12.2%

379.5

375.3

(1.1%)

12.2%

Gross profit

213.5

211.7

(0.9%)

23.1%

239.3

237.5

(0.8%)

12.2%

269.5

266.4

(1.1%)

12.2%

Gross margin

71.0%

71.0%

0.0%

0.1%

71.0%

71.0%

0.0%

0.0%

71.0%

71.0%

0.0%

0.0%

EBITDA

75.8

74.6

(1.5%)

20.0%

85.5

84.6

(1.1%)

13.3%

96.2

95.1

(1.2%)

12.4%

EBITDA margin

25.2%

25.0%

(0.2%)

(0.6%)

25.4%

25.3%

(0.1%)

0.3%

25.3%

25.3%

(0.0%)

0.0%

EBITA

72.2

71.1

(1.6%)

20.8%

81.7

80.8

(1.1%)

13.8%

92.3

91.2

(1.2%)

12.8%

EBITA margin

24.0%

23.8%

(0.2%)

(0.4%)

24.3%

24.2%

(0.1%)

0.3%

24.3%

24.3%

(0.0%)

0.1%

PBT

67.7

66.5

(1.7%)

16.6%

78.0

77.1

(1.2%)

15.9%

89.4

88.3

(1.3%)

14.4%

EPS - normalised, diluted (p)

20.4

20.0

(1.7%)

(0.7%)

22.8

22.5

(1.2%)

12.3%

25.9

25.6

(1.3%)

13.8%

EPS - reported (p)

11.0

10.7

(3.2%)

51.1%

13.9

13.6

(2.0%)

27.6%

17.0

16.7

(2.0%)

22.4%

DPS (p)

4.0

4.0

0.0%

5.0%

4.3

4.3

0.0%

7.5%

4.6

4.6

0.0%

7.0%

Net debt/(cash)

68.5

89.5

30.5%

(15.5%)

19.3

41.0

112.7%

(54.2%)

(38.6)

(15.8)

(59.2%)

N/A

Net debt/EBITDA

0.9

1.2

0.2

0.5

N/A

N/A

Divisional forecasts

Revenue

Identity

195.1

190.6

(2.3%)

33.5%

221.3

216.7

(2.1%)

13.7%

252.7

246.3

(2.6%)

13.7%

Location

71.0

72.0

1.4%

8.5%

78.1

79.2

1.4%

10.0%

85.9

87.1

1.4%

10.0%

Fraud

34.7

35.6

2.4%

6.7%

37.7

38.6

2.4%

8.5%

40.9

41.9

2.5%

8.6%

Group

300.8

298.1

(0.9%)

22.9%

337.0

334.4

(0.8%)

12.2%

379.5

375.3

(1.1%)

12.2%

Adjusted operating profit

Identity

70.7

69.0

(2.4%)

21.0%

79.5

78.0

(1.9%)

13.0%

89.5

87.7

(2.0%)

12.4%

Location

25.5

25.9

1.4%

5.3%

28.1

28.5

1.4%

10.0%

30.9

31.3

1.4%

10.0%

Fraud

8.3

8.5

2.4%

6.3%

9.0

9.3

2.4%

8.5%

9.8

10.1

2.5%

8.6%

Central costs

-32.4

-32.4

0.0%

-34.9

-34.9

0.0%

-37.9

-37.9

0.0%

Group

72.2

71.1

(1.6%)

20.8%

81.7

80.8

(1.1%)

13.8%

92.3

91.2

(1.2%)

12.8%

Adjusted operating margin

Identity

36.3%

36.2%

-0.04pp

35.9%

36.0%

0.06pp

35.4%

35.6%

0.19pp

Location

36.0%

36.0%

0.00pp

36.0%

36.0%

0.00pp

36.0%

36.0%

0.00pp

Fraud

24.0%

24.0%

0.00pp

24.0%

24.0%

0.00pp

24.0%

24.0%

0.00pp

Group

24.0%

23.8%

-0.17pp

24.3%

24.2%

-0.08pp

24.3%

24.3%

-0.03pp

Source: Edison Investment Research


Exhibit 2: Financial summary

£'000s

2020

2021

2022

2023e

2024e

2025e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

199,101

217,659

242,480

298,101

334,445

375,265

Cost of Sales

(54,914)

(65,096)

(70,549)

(86,449)

(96,989)

(108,827)

Gross Profit

144,187

152,563

171,931

211,652

237,456

266,438

EBITDA

 

 

51,739

61,410

62,196

74,624

84,568

95,068

Operating Profit (before amort. and except.)

47,945

57,896

58,839

71,063

80,841

91,167

Acquired intangible amortisation

(19,008)

(17,671)

(24,735)

(24,735)

(24,735)

(24,735)

Exceptionals

(1,552)

448

(4,526)

0

0

0

Share of associate

0

0

0

0

0

0

Share based payments

(4,541)

(5,170)

(6,171)

(6,788)

(7,467)

(8,214)

Operating Profit

22,844

35,503

23,407

39,540

48,639

58,219

Net Interest

(2,218)

(1,240)

(1,754)

(4,515)

(3,705)

(2,895)

Profit Before Tax (norm)

 

 

45,727

56,656

57,085

66,548

77,136

88,272

Profit Before Tax (FRS 3)

 

 

20,626

34,263

21,653

35,025

44,934

55,324

Tax

(3,562)

(7,385)

(6,390)

(8,056)

(10,335)

(12,724)

Profit After Tax (norm)

35,210

44,481

44,498

51,242

57,852

66,204

Profit After Tax (FRS 3)

17,064

26,878

15,263

26,969

34,599

42,599

Ave. Number of Shares Outstanding (m)

193.6

195.2

216.2

252.7

254.1

255.6

EPS - normalised (p)

 

 

18.2

22.8

20.6

20.3

22.8

25.9

EPS - normalised and fully diluted (p)

 

17.9

22.4

20.2

20.0

22.5

25.6

EPS - (IFRS) (p)

 

 

8.8

13.8

7.1

10.7

13.6

16.7

Dividend per share (p)

0.0

6.4

3.8

4.0

4.3

4.6

Gross Margin (%)

72.4

70.1

70.9

71.0

71.0

71.0

EBITDA Margin (%)

26.0

28.2

25.6

25.0

25.3

25.3

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

24.1

26.6

24.3

23.8

24.2

24.3

BALANCE SHEET

Fixed Assets

 

 

430,219

394,564

1,001,090

978,261

955,520

942,863

Intangible Assets

414,505

377,663

969,561

944,876

920,241

895,656

Tangible Assets

9,420

6,937

7,343

9,199

11,093

13,021

Other fixed assets

6,294

9,964

24,186

24,186

24,186

34,186

Current Assets

 

 

95,984

85,653

101,017

128,196

158,572

198,566

Debtors

66,554

58,617

69,715

89,430

100,334

112,580

Cash

27,499

21,135

22,302

28,766

47,238

73,986

Other

1,931

5,901

9,000

10,000

11,000

12,000

Current Liabilities

 

 

(86,459)

(90,000)

(115,795)

(133,235)

(147,887)

(164,714)

Creditors

(80,280)

(86,338)

(109,939)

(127,379)

(142,031)

(158,858)

Contingent consideration

(6,179)

(3,662)

(5,856)

(5,856)

(5,856)

(5,856)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(94,810)

(25,961)

(199,185)

(181,935)

(142,986)

(113,642)

Long term borrowings

(62,139)

0

(128,226)

(118,226)

(88,226)

(58,226)

Contingent consideration

0

0

(1,920)

(1,920)

(1,920)

(1,920)

Other long term liabilities

(32,671)

(25,961)

(69,039)

(61,789)

(52,840)

(53,496)

Net Assets

 

 

344,934

364,256

787,127

791,288

823,219

863,073

CASH FLOW

Operating Cash Flow

 

 

48,498

72,631

56,256

71,349

87,317

98,650

Net Interest

(1,768)

(1,211)

(1,373)

(4,515)

(3,705)

(2,895)

Tax

(6,386)

(14,205)

(11,610)

(15,306)

(19,284)

(22,068)

Capex

(1,339)

(738)

(1,731)

(3,400)

(3,550)

(3,700)

Acquisitions/disposals

(81)

2,545

(460,484)

0

0

0

Financing

(1,553)

3,476

298,219

(2,067)

(2,171)

(2,279)

Dividends

(5,761)

(5,883)

(6,677)

(9,596)

(10,135)

(10,959)

Net Cash Flow

31,610

56,615

(127,400)

36,464

48,472

56,748

Opening net debt/(cash)

 

 

65,699

34,640

(21,135)

105,924

89,460

40,988

HP finance leases initiated

0

0

0

0

0

0

Other

(551)

(840)

341

(20,000)

0

0

Closing net debt/(cash)

 

 

34,640

(21,135)

105,924

89,460

40,988

(15,760)

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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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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KEFI Gold and Copper — Rounding the final bend

KEFI Gold and Copper (KEFI) has, this week, made two announcements pertinent to its future. In the first, it announced the renewal of its Jibal Qutman exploration licence in Saudi Arabia, which opens the way for the commencement of field programmes and environmental studies etc required ahead of the award of a mining licence. In the second, this morning, it announced continued progress with project financings (including final costs and schedules for a combined open pit and underground mine) at Tulu Kapi. The company expects that the final finance plan will be published in mid-November and that it will remain consistent with that published in its recent annual report, with syndicate member contributions being adjusted as required and residual equity funding being met from the exercise of outstanding warrants (at a strike price of 1.6p/share) ahead of full project launch by the end of the year (cf October previously). This would be a very successful outcome within the context of current stock market turmoil and in a country in which the working environment can only be described as ‘challenging’.

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