GB Group — Resilient H1 trading drives upgrades

GB Group (AIM: GBG)

Last close As at 20/12/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

More on this equity

Research: TMT

GB Group — Resilient H1 trading drives upgrades

GB Group (GBG) expects to report underlying revenue growth of 10% y-o-y for H121, with a one-off contract in the US making a material contribution to revenues. Combined with strict cost control this resulted in adjusted operating profit growth of 26% y-o-y and a £32m h-o-h reduction in net debt. With management guidance for revenue well ahead of our and consensus forecasts for FY21, we have upgraded our revenue and EPS forecasts for FY21–23. Despite COVID-19 related pressure on new business in the short-term, we view GBG as well placed to benefit from the accelerated shift in the digitalisation of business processes.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

GB Group

Resilient H1 performance drives upgrades

H121 trading update

Software & comp services

22 October 2020

Price

871p

Market cap

£1,700m

Net debt (£m) at end H120

2.7

Shares in issue

195.2m

Free float

98%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.3

28.3

61.3

Rel (local)

20.5

36.5

96.1

52-week high/low

875p

474p

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 72 countries and generates more than 56% of revenues internationally.

Next events

H121 results

8 December

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 underlying revenue growth of 10% y-o-y for H121, with a one-off contract in the US making a material contribution to revenues. Combined with strict cost control this resulted in adjusted operating profit growth of 26% y-o-y and a £32m h-o-h reduction in net debt. With management guidance for revenue well ahead of our and consensus forecasts for FY21, we have upgraded our revenue and EPS forecasts for FY21–23. Despite COVID-19 related pressure on new business in the short-term, we view GBG as well placed to benefit from the accelerated shift in the digitalisation of business processes.

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

56.6

03/20

199.1

47.9

45.7

17.9

0.0

48.7

03/21e

199.2

44.4

42.2

16.3

6.0

53.5

03/22e

213.2

46.9

45.2

17.3

3.3

50.3

03/23e

234.7

51.7

50.1

19.1

3.6

45.7

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

H121 trading better than expected

GBG expects to report H121 revenue of £103m, up 9% y-o-y and up 10% on an organic constant currency basis. The company benefited from a one-off contract in the US Identity business, which is not expected to contribute materially in H221. Adjusted operating profit for H121 is expected to be c £27m, up 26% y-o-y. The adjusted operating margin of c 26% is ahead of the 24.1% FY20 margin. Net debt reduced from £35.0m at the end of FY20 to £2.7m at the end of H121. GBG intends to declare a 3p interim dividend when it reports H121 results and will pay out director bonuses that were accrued in FY20 but deferred to preserve cash.

Positive guidance; estimates upgraded

Management expects full year revenue to be flat to marginally ahead of FY20, which is ahead of consensus (£178.6m per GBG website). We have upgraded our forecasts to reflect the strong performance in H1, which results in normalised EPS upgrades of 47% in FY21e, 21% in FY22e and 12% in FY23e. Although GBG usually only pays one dividend a year, we have assumed it also pays a final dividend this year to compensate for the lack of dividend in FY20.

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 ID 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 23.7% and revenue growth of c 16% per year from FY24, at the upper end of the group’s revenue and margin targets. Outside of 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

Exhibit 1: Changes to forecasts

£m

FY21e

FY22e

FY23e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

176.5

199.2

12.8%

0.0%

189.3

213.2

12.7%

7.1%

208.2

234.7

12.8%

10.1%

Gross profit

128.3

144.8

12.8%

0.4%

138.2

153.5

11.1%

6.0%

152.0

169.0

11.2%

10.1%

Gross margin

72.7%

72.7%

0.0%

0.3%

73.0%

72.0%

(1.0%)

(0.7%)

73.0%

72.0%

(1.0%)

0.0%

EBITDA

34.8

48.4

38.9%

(6.5%)

43.0

51.1

19.0%

5.7%

50.5

56.1

11.0%

9.8%

EBITDA margin

19.7%

24.3%

4.6%

(1.7%)

22.7%

24.0%

1.3%

(0.3%)

24.3%

23.9%

(0.4%)

(0.1%)

EBITA

30.8

44.4

44.0%

(7.4%)

38.8

46.9

21.1%

5.7%

46.2

51.7

12.1%

10.2%

EBITA margin

17.5%

22.3%

4.8%

(1.8%)

20.5%

22.0%

1.5%

(0.3%)

22.2%

22.0%

(0.1%)

0.0%

PBT, normalised

28.7

42.2

47.3%

(7.6%)

37.0

45.2

22.1%

7.0%

44.5

50.1

12.5%

10.8%

EPS - normalised, diluted (p)

11.1

16.3

46.9%

(9.0%)

14.3

17.3

21.4%

6.4%

17.1

19.1

11.6%

10.1%

EPS - reported (p)

1.9

7.1

282.4%

(18.9%)

4.9

8.1

63.7%

12.8%

8.0

10.1

26.1%

24.8%

DPS (p)

2.0

6.0

200.0%

N/A

2.6

3.3

26.9%

(45.0%)

3.2

3.6

12.5%

9.1%

213.2

12.7%

7.1%

Net debt/(cash)

13.2

12.0

(8.8%)

(65.2%)

(8.1)

(16.6)

104.9%

(238.0%)

(35.4)

(48.6)

37.2%

192.1%

Net debt/EBITDA

0.4

0.2

N/A

N/A

N/A

N/A

Divisional forecasts

Revenue

Identity

91.9

113.3

23.2%

7.5%

99.8

122.3

22.6%

7.9%

110.5

135.5

22.6%

10.8%

Location

43.8

45.8

4.5%

-8.0%

47.3

49.5

4.5%

8.0%

53.0

55.4

4.5%

12.0%

Fraud

34.4

33.8

(1.9%)

-4.8%

37.2

36.5

(1.9%)

7.9%

40.6

39.8

(2.0%)

9.2%

Group

176.5

199.2

12.8%

0.0%

189.3

213.2

12.7%

7.1%

208.2

234.7

12.8%

10.1%

Adjusted operating profit

Identity

22.1

35.9

62.5%

6.6%

27.4

37.0

35.0%

3.3%

32.1

41.0

28.1%

10.8%

Location

11.2

11.2

0.3%

-23.0%

13.7

13.9

0.9%

23.7%

15.9

15.5

(2.4%)

12.0%

Fraud

9.3

8.9

(3.8%)

-33.5%

10.8

10.2

(5.3%)

14.2%

12.2

11.1

(8.5%)

9.2%

Group

30.8

44.4

44.0%

-7.4%

38.8

46.9

21.1%

5.7%

46.2

51.7

12.1%

10.2%

Adjusted operating margin

Identity

24.0%

31.7%

27.5%

30.3%

29.0%

30.3%

Location

25.5%

24.5%

29.0%

28.0%

30.0%

28.0%

Fraud

27.0%

26.5%

29.0%

28.0%

30.0%

28.0%

Group

17.5%

22.3%

20.5%

22.0%

22.2%

22.0%

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

199,158

213,242

234,719

Cost of Sales

(20,302)

(27,092)

(36,060)

(54,914)

(54,370)

(59,708)

(65,721)

Gross Profit

67,166

92,610

107,444

144,187

144,788

153,535

168,998

EBITDA

 

 

18,734

28,741

34,080

51,739

48,385

51,127

56,118

Operating Profit (before amort. and except.)

17,006

26,311

32,031

47,945

44,395

46,947

51,739

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)

0

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

20,500

22,552

27,795

Net Interest

(498)

(508)

(689)

(2,218)

(2,155)

(1,730)

(1,630)

Profit Before Tax (norm)

 

 

16,508

25,803

31,342

45,727

42,240

45,217

50,109

Profit Before Tax (FRS 3)

 

 

10,082

13,400

14,736

20,626

18,345

20,822

26,165

Tax

668

(2,746)

(2,583)

(3,562)

(4,403)

(4,997)

(6,280)

Profit After Tax (norm)

13,206

20,642

24,760

35,210

32,102

34,365

38,083

Profit After Tax (FRS 3)

10,750

10,654

12,153

17,064

13,942

15,825

19,885

Ave. Number of Shares Outstanding (m)

131.6

150.6

158.1

193.6

195.1

196.4

197.7

EPS - normalised (p)

 

 

10.0

13.7

15.7

18.2

16.5

17.5

19.3

EPS - normalised and fully diluted (p)

 

9.9

13.5

15.4

17.9

16.3

17.3

19.1

EPS - (IFRS) (p)

 

 

8.2

7.1

7.7

8.8

7.1

8.1

10.1

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

72.7

72.0

72.0

EBITDA Margin (%)

21.4

24.0

23.7

26.0

24.3

24.0

23.9

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

19.4

22.0

22.3

24.1

22.3

22.0

22.0

BALANCE SHEET

Fixed Assets

 

 

105,653

170,284

438,683

430,219

412,229

394,148

376,969

Intangible Assets

98,753

161,372

425,646

414,505

395,505

376,505

358,505

Tangible Assets

2,856

4,700

4,815

9,420

10,430

11,349

12,170

Other fixed assets

4,044

4,212

8,222

6,294

6,294

6,294

6,294

Current Assets

 

 

48,914

61,121

76,522

95,984

113,717

143,467

179,139

Debtors

30,569

37,969

54,992

66,554

71,697

76,767

84,499

Cash

17,618

22,753

21,189

27,499

40,089

64,769

92,710

Other

727

399

341

1,931

1,931

1,931

1,931

Current Liabilities

 

 

(44,444)

(56,942)

(77,030)

(86,459)

(88,854)

(94,923)

(103,743)

Creditors

(36,436)

(56,100)

(70,302)

(80,280)

(82,675)

(88,744)

(97,564)

Contingent consideration

(7,122)

(45)

(5,287)

(6,179)

(6,179)

(6,179)

(6,179)

Short term borrowings

(886)

(797)

(1,441)

0

0

0

0

Long Term Liabilities

 

 

(15,940)

(16,711)

(116,707)

(94,810)

(79,075)

(69,220)

(59,474)

Long term borrowings

(11,499)

(8,451)

(85,447)

(62,139)

(52,139)

(48,139)

(44,139)

Contingent consideration

0

0

0

0

0

0

0

Other long term liabilities

(4,441)

(8,260)

(31,260)

(32,671)

(26,936)

(21,081)

(15,335)

Net Assets

 

 

94,183

157,752

321,468

344,934

358,016

373,472

392,892

CASH FLOW

Operating Cash Flow

 

 

16,305

31,620

27,779

48,498

45,638

52,125

57,206

Net Interest

(498)

(545)

(689)

(1,768)

(2,155)

(1,730)

(1,630)

Tax

(2,193)

(3,247)

(2,930)

(6,386)

(10,138)

(10,852)

(12,026)

Capex

(2,227)

(2,018)

(1,625)

(1,339)

(2,900)

(3,000)

(3,100)

Acquisitions/disposals

(36,840)

(70,363)

(255,101)

(81)

0

0

0

Financing

24,755

56,668

157,339

(1,553)

(2,000)

(2,000)

(2,000)

Dividends

(2,775)

(3,582)

(4,049)

(5,761)

(5,855)

(5,864)

(6,509)

Net Cash Flow

(3,473)

8,533

(79,276)

31,610

22,590

28,679

31,941

Opening net debt/(cash)

 

 

(8,673)

(5,233)

(13,505)

65,699

34,640

12,050

(16,630)

HP finance leases initiated

0

0

0

0

0

0

0

Other

33

(261)

72

(551)

0

0

0

Closing net debt/(cash)

 

 

(5,233)

(13,505)

65,699

34,640

12,050

(16,630)

(48,571)

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 £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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