GB Group — Upgrading FY21 forecasts

GB Group (AIM: GBG)

Last close As at 04/11/2024

324.60

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Research: TMT

GB Group — Upgrading FY21 forecasts

GB Group (GBG) has confirmed that trading since it last reported in December has been stronger than expected. Continued benefits from the US stimulus packages and higher volumes of bitcoin and retail share trading have boosted Identity volumes. We have upgraded our FY21 forecasts to reflect new company guidance, with FY22 and FY23 estimates substantially unchanged.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

GB Group

Upgrading FY21 forecasts

Trading update

Software & comp services

25 February 2021

Price

826p

Market cap

£1,621m

$1.41:£1

Net debt (£m) at end H121

2.7

Shares in issue

196.3m

Free float

98%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.7)

(1.9)

22.7

Rel (local)

(5.9)

(6.1)

29.3

52-week high/low

954p

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 more than 70 countries and generates more than 56% of revenues internationally.

Next events

FY21 trading update

April

Analyst

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

GB Group (GBG) has confirmed that trading since it last reported in December has been stronger than expected. Continued benefits from the US stimulus packages and higher volumes of bitcoin and retail share trading have boosted Identity volumes. We have upgraded our FY21 forecasts to reflect new company guidance, with FY22 and FY23 estimates substantially unchanged.

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

53.6

03/20

199.1

47.9

45.7

17.9

0.0

46.2

03/21e

213.1

53.2

51.5

19.8

6.0

41.6

03/22e

212.5

48.0

46.9

17.9

3.3

46.2

03/23e

235.5

53.7

52.8

20.0

3.6

41.2

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

Identity performance remains buoyant

In H121, the company reported that its Identity business had benefited from high volumes of applications for US government COVID-19-related financial support, and high levels of demand have continued so far in H221. In January and early February, GBG also benefited from higher volumes of bitcoin and retail share trading in both the US and Europe. Consequently, for FY21 management expects to report revenue of at least £213m and adjusted operating profit of at least £53m.

Upgrading forecasts for FY21

We have assumed that most of this strong performance is specific to the pandemic and will not carry through into FY22 and FY23. We have raised our FY21 revenue forecast by 7%, which translates to a normalised EPS uplift of 19%. We leave our FY22 and FY23 forecasts substantially unchanged, as potential revenue upside from the improving fortunes of travel and leisure customers is likely to be offset by the effect of the strength of sterling versus the US dollar. The company expects to provide a further trading update for FY21 in the week starting 19 April.

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 Identity 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 22.6% and revenue growth of 15.6% per year from FY24, at the upper end of the group’s revenue and margin targets. Outside of faster-than-expected 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: Financial summary

£m

FY21e

FY21e

 

 

FY22e

FY22e

 

 

FY23e

FY23e

 

 

old

new

change

y-o-y

old

new

change

y-o-y

old

new

change

y-o-y

Revenues

198.7

213.1

7.2%

7.0%

212.5

212.5

0.0%

(0.3%)

235.4

235.5

0.0%

10.8%

Gross profit

143.1

153.5

7.2%

6.4%

153

153

0.0%

(0.3%)

169.5

169.6

0.0%

10.8%

Gross margin

72.0%

72.0%

0.0%

(0.4%)

72.0%

72.0%

0.0%

0.0%

72.0%

72.0%

0.0%

0.0%

EBITDA

49.0

57.2

16.6%

10.5%

52.1

52.1

0.0%

(8.8%)

58.0

58.1

0.1%

11.4%

EBITDA margin

24.7%

26.8%

2.2%

0.8%

24.5%

24.5%

0.0%

(2.3%)

24.6%

24.7%

0.0%

0.1%

EBITA

45.0

53.2

18.1%

10.9%

47.9

48.0

0.0%

(9.8%)

53.7

53.7

0.1%

12.0%

EBITA margin

22.7%

25.0%

2.3%

0.9%

22.6%

22.6%

0.0%

(2.4%)

22.8%

22.8%

0.0%

0.2%

PBT

43.4

51.5

18.8%

12.7%

46.8

46.9

0.0%

(9.1%)

52.8

52.8

0.1%

12.8%

EPS - normalised, diluted (p)

16.7

19.8

18.8%

10.9%

17.9

17.9

0.0%

(9.8%)

20.0

20.0

0.1%

12.0%

EPS - reported (p)

7.5

10.7

42.0%

21.5%

8.7

8.7

0.1%

(19.1%)

11.1

11.1

0.1%

27.8%

DPS (p)

6.0

6.0

0.0%

N/A

3.3

3.3

0.0%

(45.0%)

3.6

3.6

0.0%

9.1%

Net debt/(cash)

15.4

11.1

(28.2%)

(68.0%)

(14.2)

(20.4)

43.7%

(284.2%)

(47.9)

(54.1)

13.0%

165.4%

Net debt/EBITDA (x)

0.3

0.2

N/A

N/A

N/A

N/A

Divisional forecasts

Revenue

Identity

115.8

130.2

12.4%

23.5%

125.8

126.2

0.3%

-3.0%

139.4

139.9

0.3%

10.8%

Location

50.2

50.2

0.0%

-2.5%

54.2

53.9

(0.6%)

7.3%

60.7

60.3

(0.6%)

12.0%

Fraud

30.1

30.1

0.0%

-15.1%

32.5

32.5

0.0%

7.7%

35.3

35.3

(0.0%)

8.8%

Group

198.7

213.1

7.2%

-0.2%

212.5

212.5

0.0%

-0.3%

235.4

235.5

0.0%

10.8%

Adjusted operating profit

Identity

37.2

45.3

21.9%

34.7%

38.1

38.2

0.3%

-15.6%

42.2

42.4

0.3%

10.8%

Location

14.3

14.3

0.0%

-4.5%

15.2

15.1

(0.6%)

5.6%

17.0

16.9

(0.6%)

12.0%

Fraud

6.7

6.7

0.0%

-50.2%

8.4

8.4

0.0%

26.2%

9.5

9.5

(0.0%)

13.0%

Group

45.0

53.2

18.1%

10.9%

47.9

48.0

0.0%

-9.8%

53.7

53.7

0.1%

12.0%

Adjusted operating margin

Identity

32.1%

34.8%

30.3%

30.3%

30.3%

30.3%

Location

28.4%

28.4%

28.0%

28.0%

28.0%

28.0%

Fraud

22.2%

22.2%

26.0%

26.0%

27.0%

27.0%

Group

22.7%

25.0%

22.6%

22.6%

22.8%

22.8%

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2017

2018

2019

2020

2021e

2022e

2023e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

87,468

119,702

143,504

199,101

213,131

212,520

235,497

Cost of Sales

(20,302)

(27,092)

(36,060)

(54,914)

(59,677)

(59,506)

(65,939)

Gross Profit

67,166

92,610

107,444

144,187

153,455

153,014

169,558

EBITDA

 

 

18,734

28,741

34,080

51,739

57,154

52,113

58,053

Operating Profit (before amort. and except.)

17,006

26,311

32,031

47,945

53,186

47,959

53,703

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)

(93)

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

29,198

23,564

29,759

Net Interest

(498)

(508)

(689)

(2,218)

(1,655)

(1,105)

(855)

Profit Before Tax (norm)

 

 

16,508

25,803

31,342

45,727

51,531

46,854

52,848

Profit Before Tax (FRS 3)

 

 

10,082

13,400

14,736

20,626

27,543

22,459

28,904

Tax

668

(2,746)

(2,583)

(3,562)

(6,610)

(5,390)

(6,937)

Profit After Tax (norm)

13,206

20,642

24,760

35,210

39,163

35,609

40,165

Profit After Tax (FRS 3)

10,750

10,654

12,153

17,064

20,932

17,069

21,967

Ave. Number of Shares Outstanding (m)

131.6

150.6

158.1

193.6

195.4

197.1

198.4

EPS - normalised (p)

 

 

10.0

13.7

15.7

18.2

20.0

18.1

20.2

EPS - normalised and fully diluted (p)

 

9.9

13.5

15.4

17.9

19.8

17.9

20.0

EPS - (IFRS) (p)

 

 

8.2

7.1

7.7

8.8

10.7

8.7

11.1

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

72.0

72.0

72.0

EBITDA Margin (%)

21.4

24.0

23.7

26.0

26.8

24.5

24.7

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

19.4

22.0

22.3

24.1

25.0

22.6

22.8

BALANCE SHEET

Fixed Assets

 

 

105,653

170,284

438,683

430,219

411,001

392,947

375,798

Intangible Assets

98,753

161,372

425,646

414,505

390,981

371,931

353,881

Tangible Assets

2,856

4,700

4,815

9,420

10,502

11,497

12,398

Other fixed assets

4,044

4,212

8,222

6,294

9,519

9,519

9,519

Current Assets

 

 

48,914

61,121

76,522

95,984

90,988

118,403

156,399

Debtors

30,569

37,969

54,992

66,554

76,727

76,507

84,779

Cash

17,618

22,753

21,189

27,499

8,761

36,397

66,121

Other

727

399

341

1,931

5,499

5,499

5,499

Current Liabilities

 

 

(44,444)

(56,942)

(77,030)

(86,459)

(89,627)

(91,996)

(101,112)

Creditors

(36,436)

(56,100)

(70,302)

(80,280)

(85,424)

(87,793)

(96,909)

Contingent consideration

(7,122)

(45)

(5,287)

(6,179)

(4,203)

(4,203)

(4,203)

Short term borrowings

(886)

(797)

(1,441)

0

0

0

0

Long Term Liabilities

 

 

(15,940)

(16,711)

(116,707)

(94,810)

(46,413)

(36,727)

(26,981)

Long term borrowings

(11,499)

(8,451)

(85,447)

(62,139)

(19,833)

(16,002)

(12,002)

Contingent consideration

0

0

0

0

(458)

(458)

(458)

Other long term liabilities

(4,441)

(8,260)

(31,260)

(32,671)

(26,122)

(20,267)

(14,521)

Net Assets

 

 

94,183

157,752

321,468

344,934

365,949

382,627

404,104

CASH FLOW

Operating Cash Flow

 

 

16,305

31,620

27,779

48,498

49,150

54,703

58,896

Net Interest

(498)

(545)

(689)

(1,768)

(1,454)

(936)

(855)

Tax

(2,193)

(3,247)

(2,930)

(6,386)

(12,367)

(11,245)

(12,684)

Capex

(2,227)

(2,018)

(1,625)

(1,339)

(2,900)

(3,000)

(3,100)

Acquisitions/disposals

(36,840)

(70,363)

(255,101)

(81)

(2,089)

0

0

Financing

24,755

56,668

157,339

(1,553)

(1,037)

(2,000)

(2,000)

Dividends

(2,775)

(3,582)

(4,049)

(5,761)

(5,855)

(5,886)

(6,534)

Net Cash Flow

(3,473)

8,533

(79,276)

31,610

23,447

31,636

33,724

Opening net debt/(cash)

 

 

(8,673)

(5,233)

(13,505)

65,699

34,640

11,072

(20,395)

HP finance leases initiated

0

0

0

0

0

0

0

Other

33

(261)

72

(551)

121

(169)

0

Closing net debt/(cash)

 

 

(5,233)

(13,505)

65,699

34,640

11,072

(20,395)

(54,119)

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.

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.

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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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Standard Life European Private Equity — Ready to deploy further capital in 2021

Standard Life Private Equity Trust (SLPET) reported an 11.7% NAV TR in FY20 (ending 30 September 2020), driven by its resilient portfolio weighted towards technology, healthcare and consumer staples (c 51% of NAV at end-FY20). Over the period, the company received a healthy £140m from realisations at an average exit multiple of 3.5x (supported by the partial exit from Action). SLPET is well-placed to pursue new deals in 2021, which it expects to be skewed more towards secondaries and co-investments than in the past.

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