GB Group — Update 20 October 2016

GB Group (AIM: GBG)

Last close As at 28/03/2024

324.60

9.80 (3.11%)

Market capitalisation

GBP813m

More on this equity

Research: TMT

GB Group — Update 20 October 2016

GB Group

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TMT

GB Group

A slower ramp for GOV.UK Verify

Trading update

Software & comp services

20 October 2016

Price

280p

Market cap

£373m

Forecast net cash (£m) at end FY17

2.0

Shares in issue

133m

Free float

96%

Code

GBG

Primary exchange

AIM

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

N/A

N/A

N/A

Rel (local)

N/A

N/A

N/A

52-week high/low

349.00p

240.00p

Business description

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

Next events

Interims

w/c 28 November 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

GB Group is a research client of Edison Investment Research Limited

Underlying trading was solid in H116. However the new GOV.UK Verify service is behind plan and we are pairing back our revenue estimates to reflect a slower ramp. Outperformance and deferred investment elsewhere mitigates the earnings impact of this in FY16, but we reduce EPS forecasts by 5% in FY17 and FY18. The business remains very well placed, but we believe that a period of share price consolidation is likely ahead of the transition to the new CEO, Chris Clark (ex-Experian) in April 2017.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

57.3

10.5

6.7

1.9

41.9

0.7

03/16

73.4

13.2

8.2

2.1

34.1

0.7

03/17e

89.0

15.9

9.4

2.2

29.9

0.8

03/18e

105.0

19.0

10.6

2.5

26.5

0.9

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

Chris Clark appointed CEO from April 2017

On 13 October, GBG announced the appointment of Chris Clark as CEO, replacing Richard Law, who announced his planned retirement in April. Clark will join from Experian (a customer and competitor of GBG’s) where he was MD of the UK, Ireland and EMEA division, before which he worked for 20 years at BT running various international technology-based businesses. He will join on 1 April 2017 and Law will remain at GBG to ensure a smooth handover.

Solid trading, although GOV.UK Verify behind plan

The H1 trading update indicates first half revenues of £37.5m, up 16% y-o-y, with organic growth of 9%. Operating profit is expected to be at least £5m (+11% y-o-y), a 13.3% margin, slightly down on last year’s 13.9%, reflecting the integration of the loss-making Loqate (acquired in April 2015) and investment into its the GOV.UK Verify platform. While this is a solid performance, particularly in the context of the strong basis of comparison (18% revenue growth in H115), the GOV.UK Verify project is considerably behind plan. We reduce our revenue estimates by c 5% across the forecast period, and make a similar adjustment to EPS forecasts in FY18e and FY19e. In the current year, outperformance and deferred investment elsewhere in the business should mitigate the impact of the shortfall in revenues on earnings and make little change to our FY16 EPS forecast.

Valuation: Priced for ongoing growth

Following today’s fall, GBG trades on a calendarised P/E of 30x FY17e and 27x FY18e. While at a premium to its peer average, when taking into account the revenue growth profile of GBG this is fairly consistent with the wider identity verification and cyber security peer set. The shares lack a short term upside catalyst, but the company remains well placed and with the prospect of further earnings-accretive acquisitions, we believe there is potential for the shares to resume their upwards trajectory in the medium term.

Exhibit 1: Summary forecast changes

£000s

2017e

 

2018e

 

2019e

Previous

New

Change (%)

 

Previous

New

Change (%)

 

Previous

New

Change (%)

Revenues

94,100

89,000

(5.4)

110,225

105,000

(4.7)

124,740

118,125

(5.3)

EBITA

16,650

16,574

(0.5)

20,568

19,600

(4.7)

23,942

22,900

(4.4)

PBT

15,994

15,917

(0.5)

19,976

19,008

(4.8)

23,350

22,308

(4.5)

EPS - normalised, fd (p)

9.4

9.4

(0.5)

11.1

10.6

(4.8)

12.7

12.1

(4.5)

EPS - reported

5.6

5.5

(0.8)

8.5

8.0

(6.7)

10.5

9.9

(5.8)

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2014

2015

2016

2017e

2018e

2019e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

41,835

57,283

73,401

89,000

105,000

118,125

Cost of Sales

(14,473)

(16,448)

(17,606)

(20,888)

(17,246)

(18,553)

Gross Profit

27,362

40,835

55,795

68,112

87,754

99,572

EBITDA

 

 

7,849

11,844

14,772

18,774

22,300

25,975

Operating Profit (before amort. and except.)

7,164

10,790

13,428

16,574

19,600

22,900

Acquired intangible amortisation

(1,110)

(1,986)

(2,501)

(2,540)

(2,540)

(2,540)

Exceptionals

(1,080)

(1,629)

(94)

(1,200)

0

0

Share of associate

(159)

(10)

0

0

0

0

Share based payments

(747)

(971)

(1,245)

(1,600)

(1,700)

(1,699)

Operating Profit

4,068

6,194

9,588

11,234

15,360

18,661

Net Interest

(79)

(266)

(270)

(657)

(592)

(592)

Profit Before Tax (norm)

 

 

7,085

10,524

13,158

15,917

19,008

22,308

Profit Before Tax (FRS 3)

 

 

3,989

5,928

9,318

10,577

14,768

18,069

Tax

(474)

(1,127)

(178)

(3,502)

(4,182)

(4,908)

Profit After Tax (norm)

5,597

8,314

10,395

12,416

14,636

16,954

Profit After Tax (FRS 3)

3,515

4,801

9,140

7,076

10,586

13,161

Average Number of Shares Outstanding (m)

109.6

119.1

122.7

127.8

133.0

133.6

EPS - normalised (p)

 

 

5.1

7.0

8.5

9.7

11.0

12.7

EPS - normalised and fully diluted (p)

 

4.8

6.7

8.2

9.4

10.6

12.1

EPS - (IFRS) (p)

 

 

3.2

4.0

7.4

5.5

8.0

9.9

Dividend per share (p)

1.7

1.9

2.1

2.2

2.5

2.8

Gross Margin (%)

65.4

71.3

76.0

76.5

83.6

84.3

EBITDA Margin (%)

18.8

20.7

20.1

21.1

21.2

22.0

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

17.1

18.8

18.3

18.6

18.7

19.4

BALANCE SHEET

Fixed Assets

 

 

26,985

51,238

59,364

94,424

99,484

96,319

Intangible Assets

23,329

45,296

54,113

88,573

93,883

91,193

Tangible Assets

1,519

2,829

2,234

2,834

2,584

2,109

Other fixed assets

2,137

3,113

3,017

3,017

3,017

3,017

Current Assets

 

 

23,775

33,186

36,189

52,471

59,200

78,879

Debtors

11,929

17,408

23,774

35,536

43,251

50,663

Cash

11,846

15,778

12,415

16,935

15,949

28,216

Other

0

0

0

0

0

0

Current Liabilities

 

 

(17,861)

(30,784)

(32,559)

(41,621)

(46,836)

(51,748)

Creditors

(17,861)

(24,305)

(30,927)

(39,989)

(45,204)

(50,116)

Contingent consideration

0

(5,733)

(1,050)

(1,050)

(1,050)

(1,050)

Short term borrowings

0

(746)

(582)

(582)

(582)

(582)

Long Term Liabilities

 

 

(2,066)

(7,506)

(6,593)

(17,751)

(14,851)

(14,851)

Long term borrowings

0

(3,643)

(3,160)

(14,318)

(11,418)

(11,418)

Contingent consideration

0

(895)

0

0

0

0

Other long term liabilities

(2,066)

(2,968)

(3,433)

(3,433)

(3,433)

(3,433)

Net Assets

 

 

30,833

46,134

56,401

87,523

96,997

108,599

CASH FLOW

Operating Cash Flow

 

 

9,355

11,684

13,397

14,874

19,800

23,475

Net Interest

(79)

(266)

(282)

(657)

(592)

(592)

Tax

65

(337)

(248)

(3,502)

(4,182)

(4,908)

Capex

(1,144)

(2,011)

(1,762)

(2,700)

(2,300)

(2,450)

Acquisitions/disposals

(1,443)

(18,672)

(12,263)

(37,100)

(8,000)

0

Financing

416

10,954

790

25,000

0

0

Dividends

(1,632)

(1,955)

(2,277)

(2,553)

(2,812)

(3,258)

Net Cash Flow

5,538

(603)

(2,645)

(6,638)

1,914

12,267

Opening net debt/(cash)

 

 

(6,308)

(11,846)

(11,389)

(8,673)

(2,035)

(3,949)

HP finance leases initiated

0

0

0

0

0

0

Other

0

146

(71)

0

0

0

Closing net debt/(cash)

 

 

(11,846)

(11,389)

(8,673)

(2,035)

(3,949)

(16,216)

Source: GB Group (historics), Edison Investment Research (forecasts)

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GB Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

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

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GB Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

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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