GB Group — Pickup in H2 organic growth as expected

GB Group (AIM: GBG)

Last close As at 15/04/2024

324.60

9.80 (3.11%)

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GBP813m

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Research: TMT

GB Group — Pickup in H2 organic growth as expected

Headline revenue growth of 19% reflects a full half contribution of ID Scan and a pickup in organic growth to 12% across the year driven by the excellent performance from the higher margin international services. The mix effects of this growth resulted in EBIT of £17m, 4% ahead of our forecasts, and a 1.1pp improvement in the operating margin.

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GB Group

Pickup in H2 organic growth as expected

Trading update

Software & comp services

20 April 2017

Price

315.00p

Market cap

£424m

Net cash (£m) as at 31 March 2017

5.2

Shares in issue

134.7m

Free float

96%

Code

GBG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.0

6.6

15.4

Rel (local)

8.3

6.5

3.3

52-week high/low

349.0p

215.0p

Business description

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

Next events

FY17 results

6 June 2017

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Katherine Thompson

+44 (0)20 3077 5730

GB Group is a research client of Edison Investment Research Limited

Headline revenue growth of 19% reflects a full half contribution of ID Scan and a pickup in organic growth to 12% across the year driven by the excellent performance from the higher margin international services. The mix effects of this growth resulted in EBIT of £17m, 4% ahead of our forecasts, and a 1.1pp improvement in the operating margin.

Year end

Revenue (£m)

EBIT*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

73.4

13.4

13.2

8.2

2.1

38.4

0.7

03/17e

89.0 (87.5**)

16.6 (17.0**)

15.9

9.4

2.2

33.5

0.7

03/18e

105.0

19.6

19.0

10.6

2.5

29.7

0.8

03/19e

118.1

22.9

22.3

12.1

2.8

26.0

0.9

Note: *EBIT, PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Reported or implied by trading statement.

FY17 operating profits ahead

GBG’s trading update indicates revenue grew by 19% in FY17 with underlying organic growth for the period of 12% (adjusted for revenue in FY16 related to the recovery of start-up costs from Gov.uk/verify), which implies a slight pick-up in organic growth in the second half (11% organic growth reported in H117). While the revenue growth rate was slightly behind our forecast (21%), operating profits of £17m were ahead of our £16.6m forecast. The operating margin was up 1.1pp y-o-y to 19.4%, which is ahead of our forecast of 18.6% and despite the £2m investment into Gov.uk/verify services, due to an excellent performance of the higher margin international services.

Strong growth from international operations

The strong growth in international markets was driven in particular by the ID verification and fraud management services (+26%) as well as the address intelligence services (Loqate, 41% growth) and ID Scan, acquired in July 2016, which is performing in line with expectations. However, as in H117, the ID engagement solutions continue to underperform and the group has launched a review of this service.

Valuation: Premium P/E justified by performance

We will review our revenue-margin mix following publication of the full year results on 6 June; we do not expect to make any material changes at the operating level for FY18e. GBG is in a strong position; it reported net cash of £5.2m at the year end and has access to a £50m credit facility, the market for data and capabilities remains fragmented internationally and GBG has a good track record in making earnings accretive acquisitions. On an FY18 (March) P/E of 30x, dropping to 26x in FY19, the group’s strong growth prospects are already being reflected to a degree. However, the rating is in line with the wider cyber security peer set and we believe it is justified by the consistently strong organic performance, while the prospect of further earnings enhancing acquisitions could drive further upside.

Exhibit 1: Financial summary

£000s

2014

2015

2016

2017e

2018e

2019e

Year end 31 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 is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 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 2017. “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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 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 2017. “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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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