GB Group — Update 20 April 2016

GB Group (AIM: GBG)

Last close As at 21/11/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

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Research: TMT

GB Group — Update 20 April 2016

GB Group

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TMT

GB Group

CEO to retire; leaves GBG in good shape

Forecast update

Software & comp services

20 April 2016

Price

288p

Market cap

£353m

Net cash (£m) at March 2016

8.7

Shares in issue

123.3m

Free float

95%

Code

GBG

Primary exchange

AIM

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

6.9

6.5

44.1

Rel (local)

3.7

(1.7)

55.4

52-week high/low

283.75p

187.00p

Business description

GB Group has complementary identity intelligence offerings of verification, capture, maintenance and analysis, enabling companies to identify and understand their customers.

Next event

FY16 results

8 June 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5757

Dan Ridsdale

+44 (0)20 3077 5729

GB Group is a research client of Edison Investment Research Limited

GB Group’s (GBG) CEO Richard Law has announced his intention to retire. He will remain at GBG for as long as required to ensure a smooth transition to a new CEO once appointed. He will be leaving the group in good shape; 27% of revenues are now from the strategically important international markets and the year-end trading update points to strong momentum, with FY16 EBITA 11% ahead of our forecasts.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

57.3

10.5

6.7

1.9

43.1

0.6

03/16e

76.0

13.1

8.2

2.0

35.3

0.7

03/17e

89.0

14.6

9.0

2.2

31.9

0.8

03/18e

98.0

17.3

10.3

2.4

27.9

0.8

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

Momentum continues, underlying margins strong

GBG reports continued strong growth and FY16 EBITA of £13.4m, ahead of our forecast of £12.1m and up 24% on last year. Net cash of £8.7m was also stronger than forecast (£3.8m). This outperformance has been driven by a strong contribution from the strategically important international revenues (now 27% of group revenues) and management’s focus on bringing Loqate (acquired in April 2015) to break even –achieved a year earlier than anticipated. Maintaining EBITA margins close to last year’s level is all the more impressive in light of the additional £3.4m investment in the GOV.UK Verify project, which was absorbed in operating expenses.

Deferred revenues, £13.8m, are up 40% y-o-y, in part due to the acquisitions but also suggesting a continued strong trading outlook, as assumed in our FY17 forecasts, which we leave unchanged.

CEO Richard Law plans to retire

Richard Law, the group’s longstanding CEO, has announced his plans to retire. Richard joined GBG in 1995, has been CEO since 2001 and has played a major role in shaping GBG into the international identity data firm that it is today. He will continue in his role until a successor has been appointed and will support the subsequent transition to a new CEO.

Valuation: Reflects a strong track record and outlook

The consistency of GBG’s strong performance continues to impress and we believe the FY17e P/E of 31.9x, while full, is appropriate for a growth company with good momentum, a strong cash conversion and an excellent track record in creating value from its acquisitions.

Exhibit 1: Summary forecast changes

 

EPS (p)

PBT (£m)

EBITDA (£m)

 

Old

New

% change

Old

New

% change

Old

New

% change

2016e

7.3

8.2

12

11.8

13.1

11

13.4

14.7

10

2017e

9.0

9.0

0

14.6

14.6

0

16.3

16.3

0

2018e

10.3

10.3

0

17.3

17.3

0

19.2

19.2

0

Source: Edison

Exhibit 2: Financial summary

£'000s

2014

2015

2016e

2017e

2018e

March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

41,835

57,283

76,000

89,000

97,988

Cost of Sales

(14,473)

(16,448)

(21,100)

(24,400)

(26,609)

Gross Profit

27,362

40,835

54,900

64,600

71,378

EBITDA

 

 

7,849

11,844

14,720

16,340

19,185

Operating Profit (before amort. and except.)

7,164

10,790

13,400

14,940

17,613

Acquired intangible amortisation

(1,110)

(1,986)

(2,340)

(2,540)

(2,540)

Exceptionals

(1,080)

(1,629)

(21)

0

0

Share of associate

(159)

(10)

0

0

0

Share based payments

(747)

(971)

(1,500)

(1,600)

(1,700)

Operating Profit

4,068

6,194

9,539

10,800

13,373

Net Interest

(79)

(266)

(300)

(300)

(300)

Profit Before Tax (norm)

 

 

7,085

10,524

13,100

14,640

17,313

Profit Before Tax (FRS 3)

 

 

3,989

5,928

9,239

10,500

13,073

Tax

(474)

(1,127)

(2,100)

(2,900)

(3,982)

Profit After Tax (norm)

5,597

8,314

10,349

11,566

13,331

Profit After Tax (FRS 3)

3,515

4,801

7,139

7,600

9,091

Average Number of Shares Outstanding (m)

109.6

119.1

122.6

123.3

124.0

EPS - normalised (p)

 

 

5.1

7.0

8.4

9.4

10.7

EPS - normalised and fully diluted (p)

 

4.8

6.7

8.2

9.0

10.3

EPS - (IFRS) (p)

 

 

3.2

4.0

5.8

6.2

7.3

Dividend per share (p)

1.7

1.9

2.0

2.2

2.4

Gross Margin (%)

65.4

71.3

72.2

72.6

72.8

EBITDA Margin (%)

18.8

20.7

19.4

18.4

19.6

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

17.1

18.8

17.6

16.8

18.0

BALANCE SHEET

Fixed Assets

 

 

26,985

51,238

64,528

63,688

61,875

Intangible Assets

23,329

45,296

57,706

56,016

53,326

Tangible Assets

1,519

2,829

3,709

4,559

5,436

Other fixed assets

2,137

3,113

3,113

3,113

3,113

Current Assets

 

 

23,775

33,186

29,654

42,688

55,144

Debtors

11,929

17,408

17,358

22,854

26,142

Cash

11,846

15,778

12,296

19,834

29,002

Other

0

0

0

0

0

Current Liabilities

 

 

(17,861)

(30,784)

(33,384)

(38,080)

(40,646)

Creditors

(17,861)

(24,305)

(26,905)

(31,601)

(34,167)

Contingent consideration

0

(5,733)

(5,733)

(5,733)

(5,733)

Short term borrowings

0

(746)

(746)

(746)

(746)

Long Term Liabilities

 

 

(2,066)

(7,506)

(7,817)

(8,567)

(8,567)

Long term borrowings

0

(3,643)

(2,854)

(2,154)

(2,154)

Contingent consideration

0

(895)

(895)

(895)

(895)

Other long term liabilities

(2,066)

(2,968)

(4,068)

(5,518)

(5,518)

Net Assets

 

 

30,833

46,134

52,981

59,729

67,806

CASH FLOW

Operating Cash Flow

 

 

9,355

11,684

17,349

15,540

18,464

Net Interest

(79)

(266)

(300)

(300)

(300)

Tax

65

(337)

(1,000)

(1,450)

(3,982)

Capex

(1,144)

(2,011)

(2,050)

(2,100)

(2,300)

Acquisitions/disposals

(1,443)

(18,672)

(14,900)

(1,000)

0

Financing

416

10,954

412

0

0

Dividends

(1,632)

(1,955)

(2,204)

(2,452)

(2,713)

Net Cash Flow

5,538

(603)

(2,693)

8,238

9,168

Opening net debt/(cash)

 

 

(6,308)

(11,846)

(11,389)

(8,696)

(16,934)

HP finance leases initiated

0

0

0

0

0

Other

0

146

0

0

0

Closing net debt/(cash)

 

 

(11,846)

(11,389)

(8,696)

(16,934)

(26,102)

Source: GB Group report and accounts (historical), Edison Investment Research (estimates)

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United Kingdom

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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