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Context. A profitable platform business in growth markets on FY26E 12x PE (tech low end) suggests ex-growth and lost strategic direction. This does not tally with yesterday’s event where GBG’s leadership team along with execs from the likes of Salesforce, IBM, AWS, Plus 500, fintech and digital identity debated today’s most pressing industry themes, with GBG’s stature in this space clear. There is lots to be done, GBG needs to prove it can re-grow, but the valuation vs this event are poles apart, irrespective of AIM to main. Complexity not commodity. Differing international compliance demands, integration across complex client compliance frameworks, seeking competitive differentiation from frictionless customer onboarding, and broader stakeholder implications (e.g. investors) all demand the appropriate Identity technology partner. Maturity of vendor, depth of capabilities and international expertise (supporting clients’ expansion) were recurring themes required from technology partners, all playing directly to GBG’s position. Agentic AI & Digital Identity. The rise of the ‘Agent workforce’ and ‘Agentic commerce’ where agents purchase, order and conduct business on behalf of organisations (interacting with client agents) throws up the need for Verification of these agents and Trust. The increasing Digital ID debate also suggests a need for verification to protect against synthetic IDs. Clients need to navigate a fast moving and highly complex backdrop, which plays to GBG’s strengths. GBG Go. GBG is migrating its location, verification and fraud capabilities into a single modular Adaptive Identity Platform. It will foster broader capability uptake, net positive pricing outcomes, recurring revenue and operational efficiencies. With a fully refreshed NA go-to-market under new leadership and focus now running through GBG, we see growth potential. Buy.
GB Group PLC
GB Group’s (GBG) share price has been suffering from forced sales by AIM IHT funds. We think that the shares are interesting for three reasons: 1) GBG is addressing weakness in US Identity, moving to platform based selling (Go) and should deliver a modest acceleration in organic growth from 2H, 2) selling by IHT funds is transitory and should be done by end October, with index buying to come thereafter, and 3) CY26E valuation of 2x EV/sales and 8x EV/EBITA is an all-time low, for a business with a 24% operating margin and potential to grow mid-single. There is also the possibility of a bid, although we have been saying that for some time! We believe that these positives outweigh the competitive risks and re-iterate our Buy rating.
We believe that management are doing the right things. In particular, the move from legacy point solutions to platform based selling, led by GBG Go, should improve customer UX and make it easier to sell more. Yesterday, the share price was affected by the move from AIM to Main, which creates an overhang. GBG has not provided a timeline yet but this will likely be partially absorbed by another buy back. Patience is required but there is very little in the share price for organic growth, which we forecast to be 3%, 5% and 6% over FY26-28E. A mid-term growth rate of 5% gets us to a DCF-based valuation of 440p per share and multiples of 7% FCF yield and 9x EV/EBITDA look too low to us.
GB Group^ (GBG, Buy at 249p) - Reassuring FY25 results
FY25 numbers and key messages FY25 in line with the pre-close with revenue +3%cc to £282.7m, EBITA £67m, +9.5% and EPS 17.4p. Cash conversion of 91.3% is in-line with net debt down to £48.5m (£80.9m FY24). DPS +4.8% to 4.4p totalling a £21m return including the recent £10m announced share buy-back. Expectations remain unchanged, as we anticipated considering we made a small pre-emptive forecast downgrade after the recent update due to potential second order impacts from the tariff debates. We will update forecasts post results but do not expect to make material changes. GBG has commenced workstreams to move from AIM to the Main Market, giving clarity around the speculation of when / if GBG would decide to move. Divisionals Ex Fraud, group NRR is 101.1%, in positive territory vs FY24 although with H125 at 102.6% it suggests a slight H2 tempering (Location). Identity revenue grew 3.1% cc to £159m with EMEA & APAC driving growth from cross sells (international data, multi-bureau) and Americas broadly flat. Americas stabilised, a key milestone, with the focus now to grow the business. NRR at 98.2% from 91.5% shows operational changes have helped, and, with the recent new leadership and focus on new customer additions, we would hope for a return to growth. Location grew 6.2% cc to £86.5m from strong upsell and partner channel momentum, although this suggests H2 was c4% (macro from lower e-commerce / retail volumes) as H1 was c8%. Fraud fell 4% cc to £38.1m as previously flagged due to contract timing in H125. The division has undergone a strategic review and will be managed as a standalone operation (Identity areas will be merged) with simplification and investment into the tech stack. Strategic progress After a full year under the CEO’s strategic plans, the signs of progress are clear, with improved KPIs. This is the start to the platform re-build from which to drive more material growth into the medium term. Simplification across the business (technology, customer facing operations), Global alignment (brand, messaging, go-to-market), Innovation (GBG Go, AI) and building back the strong group culture and performance ethos have been priorities and will underpin improved growth and returns ahead. Our View The valuation reflects limited headline growth delivered to date, but misses the underlying strategic progress, potential growth and returns acceleration this could bring. We retain Buy and our 450p PE based TP.
GBG currently trades on c.9x CY26E EV/EBITDA and a 7.6% FCF yield. In our opinion, a multiple re-rating is contingent on top-line growth reacceleration. We reiterate our Add rating and 300p TP.
The technology sector is awash with possible offers and takeover speculation again. One of the likely candidates is GB Group (GBG), which rose 9% yesterday on the rumour of another approach from GTCR, which we view as a very credible potential bidder. Not that we want to see more hollowing out of the sector. We think a bid would have to be in the region of 400p to have any chance of success. The share price has been weak on the back of April’s earnings reset, which suggests that management still have work to do in executing the turn-around. They are doing the right things but, without a bid, a re-rating is dependent upon an acceleration of organic growth which is going to be gradual.
GB Group^ (GBG, Buy at 231p) - Growth moderations
We lower FY26/27E EPS -5%/-8%, given the weaker-than-expected macro backdrop, especially in the Americas, and significant FX headwinds. In our view, a sustained re-rating would be contingent on the top line reaccelerating. GBG currently trades on c.10x CY25E EV/EBITDA and c.6.5% FCF yield. Given slower revenue momentum, we reduce our target price from 400p to 300p, but maintain our Add rating.
Headlines. FY25 rev of £283m is +3% cc vs our £287.6m, with EBITA +10% to £67m, in-line with us and consensus. Cash generation >90% is in-line with target and net debt fell to £48.5m (FY24 £80.9m). Exceptional costs of £4.5m reflects the simplification and global alignment initiatives taken in H225. Identity. FY25 revenue +3% yoy, and with H125 having grown c.6% it reflects the toughening comps into H2 more than any material trend in trading. With growth driven by EMEA and APAC, it does imply that NA declined modestly in H2 vs the slightly improved H1, and with new leadership in place, along with the broader operational group improvements, FY26 should improve. Location & Fraud. Location +6% is respectable, with good NRR from volume into current clients, as well as the partner channel continuing to perform well. In Fraud, post H125 c9% decline (prior flagged deal timings) H2 saw modest growth, with overall FY25 down 4%, although new business is slightly soft. Operational improvements. FY25 has been stabilising GBG while pushing through key operational group initiatives (single customer contracts, unified pricing structures, simplified architecture, single product brand, sales force realignment) and a comprehensive reshaping of the NA business, now complete. All things equal, this sets GBG up for accelerating FY26 delivery. Tariffs. Second order macro effects on consumer & enterprise spend could impact GBG’s volumes & sales cycles; incorporating this, plus the stronger US$, we pre-emptively cut forecasts. FY26E rev £285.7m (£307.7m) 7%, EBITA £67.5m (£72.3m) -7%, EPS 17.8p (19.1p) -6%. FY27E rev £300m (£329.2m) -9%, EBITA £71.3m (£76.8m) -7%, EPS 19.4p (20.9p) -7%. View. Awaited operational delivery improvements are just starting to come, making this downgrade doubly frustrating, but GBG is growing stronger.
GB Group (GBG) is off the naughty step and becoming more investible again. 1H results were in-line, with no exceptionals, FY25E guidance was re-iterated and there were a number of points which demonstrated improving execution, such as NRR up 5ppts. The profit hurdle for 2HE (flat YOY) is low and we can see organic growth (5% in FY25E) accelerating in FY26E, as Americas Identity improves and Fraud goes back to growth. We forecast 14% EPS CAGR to FY27E, by when the group will be net cash. Valuation is no longer a bargain but still reasonable and should at least roll forward over time. Re-iterate Buy and 440p price objective.
GB Group^ (GBG, Buy at 341p) - Benefits of simplification
We make no material estimate changes. We forecast FY25E revenue of £286m (+5.4% YoY CER), implying growth acceleration in 2H. Continued positive momentum in GBG’s largest revenue segment, Identity, remains a key positive for us. GBG currently trades on 2.5x CY25E EV/Sales, 10.4x EV/EBITDA, and a c.7% FCF yield, a significant discount to historical levels. We reiterate our Add rating and 400p TP.
Numbers picking up – in-line but an encouraging tone Revenue +4.5% cc to £136.9m with EBITA of £29m (+21%), in-line with the trading update. Gross margin at 69.6% (69.2% H123) with pricing held and data input costs well managed. Opex declined 1.4% yoy despite cost inflation, reflecting the operational simplification measures being put through. This provides c£3-4m of H225 opex increase potential, supporting GBGs investment initiatives (or forecast cushion if desired). Identity grew 6%, back to growth, and Location saw another good period, up 8.6%, with the channel countering challenging e-commerce volumes. As flagged, Fraud was -9.2% cc (deal timings, strong comp) with H2 set to return to growth. NRR was 100.2% (98% FY24, 94.9% H123) with NRR ex-Fraud (deal timings) at 102.6% (FY24 99%). New win revenue grew 3.8%, in-line with prior periods, highlighting that GBG’s offerings are still very much competitive and in demand. Net debt was down £9m to £71.9m, with a c1x EBITDA leverage. Cash conversion was 83.7% (90.6% H123), with bonus payments impacting, and FY24 target remains 90-95%. Accrued income was £14.7m (FY24 £14.4m), partly due to Location seeing good channel growth (invoicing timing) and a couple of large long term Fraud deals, where cash is taken over the contract term but revenue is taken on contract signing and delivery. We understand that levels should reduce going forward. On the turn – but by how much With Identity up 6%, it implies NA returned to modest growth based on EMEA sustaining its growth trend. More needs to be done on delivering NA new deal and account expansion, but it appears the platform is stable and that required structures are now in place to take it forward. With group H125 growth of 4.5%, if we assume NA moves to mid-single digit growth, Fraud growth returns and Location holds strong, it could take GBG to high-single digit next year from its operational improvements. Furthermore, markets are still tough with Identity and Location still seeing some accounts reduce volume. If the macro loosened it would help installed base volume increase, taking growth higher still. We may be getting ahead of ourselves here, but this is far from priced in. For now, the priority is a steady, sustainable build back and these results suggest this is in train. View Our forecasts are unchanged. Little is priced in for upside execution, or a return to high-single digit growth. Capability and timing all needs to be proven, but the initial stages of the rebuild are carefully being laid. We retain our Buy and 400p TP.
We forecast FY25E revenues of £286m (+5.4% YoY at CER), which implies 2H growth acceleration following today’s update. We believe continued positive momentum in Identity remains a key positive. GBG trades on 2.5x CY25E EV/Sales, 10.4x EV/EBITDA, and a c.7% FCF yield, a significant discount to historic multiples. Reiterate Add, TP 400p.
H125 tracking to the business improvement plan In the context of stabilising and building back up, this update marks steady consistent progress and should be seen a welcome positive. It adds credibility to the refined strategy which the new CEO outlined at the FY24 results. Clearly, there is a longer path back to the growth levels GBG was posting before its downturn, but this is directionally an encouraging message. Revenue is seen as c£137m, up 4.5% cc, with combined Location and Identity up 6.8% cc. Fraud is down high single digits, as previously flagged. Operating profit is seen up 21% to £29m which is a margin of 21.2%. Net debt has reduced to £72m (FY24 £80.9m) reflecting the cash generation netted off against the £10.6m dividend and £5m FX impact. We will look to update our FY forecasts for USD/GBP moves which will likely shave c£5m off revenues, but see enough cushion in our numbers to absorb this at the profit line. Reading between the lines, positive signs The statement refers to EMEA and the Americas delivering Identity growth which is an important datapoint. With Location unlikely to have delivered >10% growth, it suggests that Identity is seeing growth return. Fraud declines were already flagged due to comps and contract phasing; not helpful, but it is not the core focus at present and is the small part of the business. Looking to profits, we see these relatively well covered, which again marks a change from recent periods. The headline profit number implies only marginal sequential opex increases, which leaves some cost flex in H225. We expect some of the modest investment plans already flagged will reach full run rate during H2 and FX will also impact, but the point is that forecasts can now accommodate these factors. The focus is now fully on the operations versus managing shifting financial objectives. View There are many more stages to get back to optimum performance, but this is a clear sign of encouragement in our view, little of which is priced into the valuation, and we would expect the shares to respond positively, Buy and 400p PE-based TP retained.
The new CEO, Dev Dhiman, is four months in. His focus is upon improving organic growth and paying down debt, which is what investors want. Unburdened by the past, there is also recognition of issues from the ‘buy and build’ which need addressing, in terms of complexity and operating better across regions. The debate now moves on to the sustainable growth rate, which we think is potentially high single-digit. With de-leveraging, we forecast 14% EPS CAGR to FY27E. GBG is no longer a bargain but back to growth, with high margins and good cash flow, we think that valuation multiples should at least roll forward over time. We maintain our Buy rating and raise our TP to 440p.
We make no material changes to estimates. We see this set of results as a step in the right direction by GBG under a new CEO. While we are still not back in double-digit growth territory, a 4Q FY24 exit growth rate of +5% and the Identity segment returning to growth are significant positives. We raise our TP from 360p to 400p as we expect a further multiple rerating and reiterate our Add recommendation.
Key messages – positive signs Numbers are in line and the outlook is credible based on Q4 revenue and cost exit run rates. This is a welcome first step. We expect to hear more about the strategy refinements from the new CEO at the presentation. Our key takeaway is that the metrics - NRR up at 98.1%, from 92.3%, and new customers delivering c.4.5% of group growth for the second year running - show that GBG is still very much relevant (technology and price) to its customer base, despite market concerns otherwise. The aim is to drive NRR back >100% levels to support a double digit growth story. Revenue trends across divisions Results are consistent with the trading update with £277.3m revenue, up 2.7% organic, and growth accelerating to 5% in Q424 as Identity improved. This was down to better comps, better execution in NA (post internal changes) and modestly improving customer buying trends, which all supports sustainability into FY25. For the year Identity was down 0.7%, largely due to Americas underperformance. Location grew 7.3% cc with a broader sector reach helping offset volume pressures, with similar growth expected ahead. Fraud grew 7.8% cc with strong licence renewals and new business wins. Some of this was multi-year licence revenue taken upfront, driving an increase in accrued income (c£8.7m FY24 vs £4m FY23) which we expect to unwind, with a softer year ahead expected in Fraud due to the renewal cycle. Profit and cost dynamics EBITA of £61.4m was in line, up 8%, through cost control with an annualised savings run rate of £10m actioned. Group opex was £8.8m lower in FY24 with average headcount down c.8%. Tech spend reduced materially to £46.5m, from £54m, with a focus on prioritisation and simplification, a theme running through the refined strategy. Gross margins were 70.1% with H224 seeing an improvement to 71% from 69.2% in H124. Our FY25E implies a mid to high single digit absolute increase in opex, which we understand more than accommodates the group’s objective of delivering high single digit profit growth. View We expect to leave our forecasts largely unchanged, with some minor mix tweaks. With forecast credibility achieved it is a good starting point for the new CEO to ‘build back stronger…leaner, efficient, commercial, globally aligned….’, all of which seem to be the message from these results. The stock has recently seen a bounce and this messaging should provide a base from which to build momentum, as credibility builds while execution comes through. We retain our 400p PE-based TP.
Technology is growing relative to GDP but the listed UK sector lacks scale, accounting for 1% of the FTSE350. Our Tekkers note presents the investment cases of some of the best small and mid-cap providers of software and IT services. Our top picks include Bytes and Cerillion for long term growth/momentum, NCC and GBG for recovery potential and Tracsis for re-rating as it shifts to higher margin/cash software products.
GBG TRCS NCC CER BYIT
GBG’s trading update is positive. Aided by a combination of softer comps and improving net retention rates, growth has reaccelerated to 5% in Q4, while profits and cash are slightly ahead of expectations. We also point to a better-than-expected mix, with the all-important Identity division returning to growth offsetting some weakness in Fraud – a trade we are more than willing to make. FY trading update: GBG is trading slightly ahead of expectations. Revenues of £277.3m and adj. EBIT of £61.2m compare with PGe of £276.9/£60.6m (consensus of £277.8/60.2m). Net debt of £81m also compared positively with PGe/Cons of c£85m. Growth reacceleration: Organic cc revenue growth was a fairly modest 2.7% for the year. However, this represents an acceleration from 1.8% at the interims, and Q4 saw 5% growth. Whilst an element of the improvement was driven by easier yoy comps, we understand that net retention rates have improved, whilst new business wins continued to contribute. For us, the relative contribution of easier comps vs underlying improvement will be an important detail at the FY results on 11 June. Mix: After weighing on group growth rates for much of the recent past (3% organic cc decline at H1), the Identity division (58% of FY23A revenue) is now the major contributor to the underling improvement in trading. The statement cites improving trends in the Americas and EMEA. We understand that transaction volumes have stabilised. Growth in Location (28% of FY23A revenue) remained ‘solid’, whilst Fraud (14%) appears to have seen a modest slowdown in H2 after two years of higher growth. For us, this mix is positive, as it implies that all else equal, the uptick in Identity (by far the most important division) is greater than we had previously anticipated. Outlook: GB anticipates mid-single digit revenue cc revenue growth, along with HSD adj. EBIT growth. This is in line with expectations. Crypto headwinds behind us: Positively, the statement doesn’t mention crypto. Whilst these headwinds were much lower in H2 than in H1 (1.5%), we still estimate a headwind across the year of at least 0.5%. This makes the implied acceleration in FY25E over FY24E (c5% vs 3%) somewhat easier. Changes to estimates: Beyond the small upgrade to FY24E, our estimates are materially unchanged. Details below. Valuation: Notwithstanding a poor year and overpaying for Acuant at the top of the Tech cycle (we continue to see a high likelihood of additional write-downs), we believe GB Group remains a good company, and today’s update hints at early signs of a reacceleration. Contrary to market concerns, we do not believe the business is losing market share (slowdown driven by a reduction in upsell as opposed to increasing customer churn). With a blue-chip client base, bid activity shouldn’t be ruled out either.
Accelerating growth in Identity helped deliver 5% constant fx growth in Q4 and FY'24 revenues that are in line with expectations. Focus on simplification and cost-effectiveness resulted in £10m of annualised savings and a 2% beat on adj. EBIT. We have kept our profit forecasts unchanged. The new fi
The year end trading update confirms that GB Group (GBG) has stabilised, after the dilutive acquisition of Acuant and 2Y of EPS downgrades. Trading and guidance support our view that organic growth should accelerate in FY25E to ~5%, cash flow is strong and we have raised our FY25E profit estimate by 1.5%. The Entrust approach values Onfido at 5x sales, almost twice GBG’s multiple. This highlights the value and is the first indication of a return to corporate activity in a sector where GBG still looks vulnerable to an approach. Buy for re-rating and recovery.
In our view, the key positive in today’s update is the strong 4Q growth rebound in the Identity segment (58.4% of revenues), which should trigger a re-rating. At a c.30% discount to the historic average, GBG currently trades on c.3x CY24E EV/Sales, c.11x CY24E EV/EBITDA and a c.7% FCF yield. We raise our TP from 340p to 360p and reiterate our Add rating.
Numbers. FY24 revenue growth is in line at 2.7% cc to £277.3m, with EBITA of £61.2m vs our £58.8m and £60.2m consensus. Net debt is c£81m vs our £82.5m and £84m consensus. As hoped for, Q4 saw a growth pick-up at 5% cc vs 1.8% (c3% ex crypto) in H124, aided by an easing in the tougher comps. Trends. In Q4, Identity improved with increased activity in NA and EMEA and the lapping of tough comps. We understand new client acquisition remains healthy, contributing c3-4% to H124 revenue growth. Location continued to post decent growth while Fraud saw a soft H224, with volatility in licence closing as at times seen in the past. While unhelpful, we do not see this as significant. We ultimately expect Fraud to see some strategic change given its relatively diverse business range mixed with the areas of overlap with Identity, which we understand are performing well. Outlook. The group sees FY25 mid-single digit revenue growth as feasible with a continuation of the same trends. This implies higher growth in Identity and Location with low single-digit/flat progression in Fraud. High single-digit growth in operating profit implies no major reinvestment into the business under any refined strategy from the new CEO, but more low single-digit cost expansion, most likely driven by inflation/pockets of reinvestment/some continued areas of cost tapering. We lower FY25E revenues by c.£2m, keeping profit intact. View. This is what was needed – some reassurance on business progression, initial signs of improved Identity revenue traction, and no major cost reinvestment dampening the profit outlook. These are the first steps in getting the group back towards being a double-digit revenue growth name. This is likely still some way off and is far from being reflected in the rating, but gives a good base to work from. We retain our Buy and PE-based 400p TP.
We continue to see Outperform rated Augmentum as one of the best vehicles to benefit from growth in private UK FinTechs. At a c.20% discount to the historic average, GBG is attractively valued in our view at 2.5x CY24E EV/Sales, 11x CY24E EV/EBITDA and a 6.5% FCF yield. The Onfido news further brings to the fore GBG's valuation discount. We reiterate our Add rating with a 340p TP.
GB Group (GBG) appears to have stabilised, after the dilutive acquisition of Acuant and 2Y of EPS decline and downgrades, as the pandemic tide went out, rates rose and ID verification proved to more cyclical than expected. Cost actions underpin FY24E estimates and there are glimmers of light on revenue, with an improvement in NRR to 99.7% and growth ex crypto of 4% on a rolling 12M basis. More will be needed for a meaningful re-rating but we believe that GBG’s valuation is too low for a business with a 22% operating margin and scope to de-lever by end CY26E.
GBG’s interims contain little by way of surprises. A re-rating is still contingent on a reacceleration of growth, and there are encouraging signs here as new logo growth was 4%, whilst net retention rates have already begun to improve. The headwind of cryptocurrency revenues is now all but behind GBG (1% run-rate). The all-important Identity division (especially the ‘Internet economy’ customers) has seen a stabilisation of transaction volumes and should see a return to growth in Q4.
Interims are largely as pre-announced in October, with H1'24 adj. EBIT of £23.9m, a smidge ahead of the trading update. Cost discipline has continued, with c. £10m of annualised savings underpinning FY profit estimates amidst what remains a subdued, but broadly stabilising market for Identity. Our
We believe GBG shares re-rating is contingent on growth reaccelerating. However, its comprehensive product portfolio, blue-chip client base and solid cash generation underpin its strategic appeal. We reiterate our Hold rating and 300p TP.
Numbers. Revenue of £132.4m is up +1.8% cc, and excluding crypto +3.3%. Gross margin fell slightly at 69.2% (mix and channel) vs 71.1% in H123. EBITA was £23.6m, a margin of 17.8%, vs £21.8m and 16.3% in H123. Opex fell 8.3% yoy to £67.6m through a focus on costs, representing an annualised run rate of c£10m. Headcount fell 9% yoy to 1,183 from attrition, some redundancies and recruitment slowdown. A non-cash impairment of £54.7m was taken against the US revenue (increase in benchmark rate). Cash conversion was 102%, with net debt at £104.8m and a current level of c£95m. Divisions. Identity revenue fell 2.8% cc to £76.6m; excluding Crypto it was flat. Americas continued to be weak, offset by APAC growth. GBG is winning a good level of new business, which is reassuring, but volumes at existing clients are muted due to the macro, although monthly transactions have stabilised. Location grew 8.1% cc to £36.6m with cross sells, upsells and pricing helping offset softer e-commerce volumes at some clients due to the macro. Fraud grew 10.5% to £19.2m driven by renewals and new wins. Outlook. We tweak down our revenue forecasts, allowing for the muted Identity backdrop, but strong progress on costs means our profit forecasts are maintained. As illustrated overleaf, our implied opex is down slightly in H2 vs H1, due to the H1 exit rates, which offsets the revenue tweak. Forecasts. FY24E Rev £276.9m (£285.5m) -3%, EBITA £58.8m (£58.4m) +1%, EPS 14.3p (14.6p) -2%, FY25E Rev £293.5m (£305.3m) -4%, EBITA £65.7m (£66.4m) -1%, EPS 17.1p (17.6p) -3%. View. GBG is priced for limited growth, allowing upside if growth is re-booted from operational delivery and better macro, driving our 400p PE-based TP.
We asked for GB Group to ‘be boring for a while’ and that is what has been delivered with the H1 trading update. Profit expectations have been reiterated, though a cynic might infer that revenues are a touch light. We also point to a stabilisation of transaction volumes in the all-important Identity division. Overall, it feels like things have stopped getting worse.
H1'24 revenues are in line (+3.3% constant fx growth, excl. crypto) and the ongoing group-wide focus on cost efficiency underpins confidence in delivering its FY24 profit expectations. Whilst Identity was the weakest part of the business (flat, ex-crypto), this was as expected and importantly, mont
Headline message Revenues are growing well in Location and Fraud, with Verification still weaker, particularly in North America, we understand. However, volumes have stabilised which gives the required confidence looking out to H224, where we would expect revenues to track to the lower end of management’s targets, which have already been largely factored into consensus, and our, forecasts. To give encouragement, there has been a strong focus on costs, in reaction to the top line trends and also driving through general efficiency post the Acuant acquisition, which, once annualised, supports the group’s outlook of maintained profit targets. We retain our profit estimates which we understand are modestly below consensus and the group’s outlook targets. While this is not perfect, we see it as reassuring, in terms of revenue stabilisation in Verification and focus on cost management versus some of the more negative scenarios that could have emerged from today’s update. Details Revenue was up 1.8% cc, or 3.3% ex Crypto, to £132.4m. Within this, Location was up high single digit, Fraud low double digit and Verification continued to be weaker, down 3% or flat ex Crypto, although monthly volumes have stabilised and growth is still expected by the end of Q4. A focus on costs has led to a £6m opex reduction yoy, or c£4m ex FX, leading to an expected H124 operating profit of £23.7m, or £23.4m underlying ex FX gains vs £21.9m last year. Cash conversion improved to 100% with net debt at £104.8m Outlook and view We expect to retain our profit forecasts while slightly tweaking revenues down, to update for the H124 performance and FX. There has been a lot of uncertainty swirling around the GBG story, which is partly reflected in the weak share price. A confident grip on costs, with a revenue line that, while not buoyant at group level, does appear to be stabilising, should be sufficient to give some much need share price reassurance, which we would hopefully see as the first step in the rebuilding of the investment case from these levels. Buy.
We believe GBG shares re-rating is contingent on growth reaccelerating. However, its comprehensive product portfolio, blue-chip client base and solid cash generation underpin its strategic appeal at an attractive valuation of c.9x CY24 EV/EBITDA. We reiterate our Hold and 300p TP.
Meeting Notes - Oct 05 2023
GBG UTG GPOR SYNC JDW MYE0
We expect GBG to issue a H1 trading update in mid to late October. We lay out our expectations below with a small adjustment (c.-1%) to revenue and adj. EBIT due to FX and expectations of a profit weighting in H2. GBG is looking to rebuild investor confidence in this period of lower growth that is
GB Group's AGM statement confirms there has been no material change in market conditions since its results in mid-June. It expects to achieve its FY24 profit and cash generation expectations assisted by a group-wide focus on efficiency. This suggests the group is ensuring the cost base is appropria
GBG’s headline FY23 results are very much in line with (reduced) expectations. However, the £122m impairment charge and the somewhat contradictory outlook statement (‘confidant of meeting its FY24 profit expectations’ amidst a 10% consensus EPS cut) led the shares downward. More positively, customer retention rates remain unchanged, and revenue contributions from new logos were higher than normal – suggesting that contrary to market concerns, the business does not believe it is losing market share. The slowdown is a function of net retention, as clients saw lower volumes across their own customer bases. As suggested by the positive initial reaction to April’s trading update, we think the business simply needs to report that things have stopped getting worse to trigger a re-rating.
FY results are as pre-announced. Outside of the US Identity business, there are bright spots, incl. double-digit growth in Location and Fraud, rate of new logo wins and ongoing innovation. The underlying outlook is steady but FX headwinds/rising interest rates result in a c. 4% EBIT downgrade and 1
Numbers. Headline figures were pre-released with revenue at £278.8m, up 3.7% pro forma organic cc, EBITA of £59.8m incl. a £3m FX gain (FY22 £58.8m) and a 21.5% margin. EPS was 16.4p (FY22 20.2p) and DPS 4p (FY22 3.8p). Net debt was £105.9m (FY22 £107m) with an £8.6m retranslation impact. A £122m non-cash impairment was taken due to the well flagged US underperformance. Cash. Conversion was 67.3% due to a £2.3m acquisition liability settlement, the £3m FX gain (P&L positive non-cash) and high FY22 bonus payments vs the FY23 accrual. There was a £4m increase in accrued income (Fraud contract payment timings), but we understand that this will not be an escalating feature going forward. Deferred revenue fell c4% as some customers opted for shorter contract terms, we understand, but not a reflection of material ‘loss of business’. Trading. As well documented, FY23 was a difficult year for GBG with volumes falling, especially within the US Identify business from Crypto / Internet economy customers. This resulted in a poor NRR metric of 98.5%, but ‘underlying’ net customer revenue was up c5% suggesting the group continues to make good competitive headway, a crucial point which should support FY24. Divisions. Location +11.7% cc from sales into the installed base and new wins, with all regions growing and an increasingly diversified pipeline gives confidence on FY24. Identity fell ‘underlying’ c2% (ex FX, crypto, stimulus) due to US volume reduction with Europe +c9%, and we expect FY24 will see flat to modest growth. Fraud +c15% with good new business and renewals. FY24E. We cut EBITA by 6% & EPS by 15% (tax, interest), detailed overleaf. To mitigate risk, we build in a modest opex yoy increase versus management’s implied flat opex progression from the increased and ongoing cost focus. View. Our operational cut is relatively modest versus the big picture and, with the shares weak, we expect sentiment could rebuild with the long-term valuation appealing which drives our continued Buy and PE-based 400p TP.
We lower our TP from 350p to 300p as we reflect the weakness in the Identity segment (implying a 2HFY23 deceleration vs 1HFY23). We believe that a re-rating of the shares is contingent on growth re-acceleration within this segment, which accounts for c.60% of group revenues.
GBG is trading in line with expectations, and is now a top pick. We think this is a classic case of paying a trough multiple whilst growth and margins are also at trough levels. PE made an approach in September when the shares were c60% higher. We think the fact that things have ceased ‘getting worse’ could provide a catalyst for improving sentiment towards this former stock market darling. BUY.
Today's trading update, confirming it will deliver results in line with the announcement in Feb should reassure in these nervy markets. We make no changes to forecasts. The challenges in US Identity have been widely discussed meanwhile Fraud and Location are confirmed to have delivered double-digit
We believe GBG shares re-rating is contingent on growth reaccelerating. However, its comprehensive product portfolio, blue-chip client base and solid cash generation underpin its strategic appeal. Hold, TP 350p.
Numbers FY23 revenue is expected to be £278.8m with profit of £59.8m, both in line with the recent downgraded guidance and in line with our forecasts and consensus. Organic pro-forma growth is 3.7% after stripping out £15.4m from Crypto currency customers and £4.2m of US stimulus. Operating margin will be c.21.5% and includes c.£3m of foreign exchange gains. Net debt of £106m is in line with our forecast. Trends Identity Verification saw the most pressure, with Fraud and Location both seeing double digit growth during the year, albeit Location was aided by prices rises during the year. Nevertheless, this should give some confidence around growth delivery heading into FY24, although with Q1 still a tougher comparative (Q2 and beyond saw the greatest Crypto fall away) so it will not be until H2 that more material growth should emerge, all things being equal. Outlook No outlook commentary has been given, aside of maintaining previous commentary given in February and we expect to hear more from the company at the FY23 results. As we commented at the time, we felt the FY24 guidance was a little demanding and reliant on the growth acceleration in H2, but the group remains confident that this should come through based on the comparatives, growth in Location and Fraud, and Identify recovery. On costs, we see the group facing a >£6m headwind in FY24 from the prior year FX gains and bonus payments vs FY23. However, we understand the headcount is being tightly managed, wage inflation has moderated, and overall costs are under good control; all should help preserve margin. Once confidence can be restored around the financial outlook, we see the share rebounding materially and this supports our Buy stance.
Despite the revisions to our forecasts, we believe GBG remains an attractive takeover target, given its comprehensive product portfolio, blue chip client base and solid cash generation. However, on an underlying basis, a re-rating of the stock is contingent upon growth re-acceleration.
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GBG’s growth has continued to disappoint in H2, with FY23E revenues set to be c5% light vs expectations. Ultimately, we maintain our view that the slowdown is due to macro and the transactional nature of revenues rather than any loss of market share. Nevertheless, the January CMD was a missed opportunity to dispel said doubts. Growth should reaccelerate, operating margins remain in excess of 20%, and the rating of 20x EPS (March YE) is undemanding. The prospect of another approach from PE (or trade) should not be ruled out. BUY.
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Having been behind the curve, GBG has finally reset financial expectations and we have downgraded PBT estimates by 11-13% for FY23/24E. The group is tough to benchmark but the reasons for weaker than expected trading appear to be macro-economic. We believe that fraud/ID is a good market and that GBG’s competitive positioning is sound, which has largely been confirmed by our customer channel checks. With shareholder price expectations and management credibility reduced and some visibility on trading, we believe that there is a high probability of another bid. Re-iterate Buy, TP cut to 550p.
FY23 Revenue of £279m (c4% growth) and c£60m profit are c3% below our estimates but a 10% consensus miss. We understand the US remains weak (crypto, fin tech, general backdrop) but elsewhere trading is progressing relatively well, which gives some encouragement on the mid-term outlook. FY24 GBG expects c4% H124 growth, which seems low considering base effects will be less challenging, but we judge a sensible degree of prudence considering the backdrops. Growth is expected to accelerate through H224 to high single digit but, with limited visibility and FY23 underperformance, the market may want to see evidence of execution first. Margins are seen same as FY23E (c21.5%), which will require tight cost management considering a £3m yoy profit headwind (no intercompany loan FX gain) and likely higher bonuses in FY24 vs FY23, combined with investment requirements. Numbers We opt for 5% revenue growth and 21% margins with our £62.1m profit 9% and 16% below our prior forecast and consensus. The eventual outcome could well be modestly higher or lower depending on how trends fall, but to us the key point is that the level of potential divergence is materially narrowing, which should enable an investment case to be start to be rebuilt. FY23E rev £279.4m (£289m) -3%, EBITA £59.8m (£62.1m), EPS 17.1p (16.4p), FY24E rev £294.4m (£312.8m) -6%, EBITA £62.1m (£68.3m) -9%, EPS 17.2p (19.1p) -10%. View In summary, we see the fundamentals largely intact, both the market and GBG’s positioning. Maybe it won’t hit historic ambitions of 12-14% revenue growth and 24% margins, but the price is far from reflecting this outlook. A period of in-line execution is the next step of sentiment rebuild and, if achieved, a 20x PE rating on a FY25E look-through seems sensible, which supports our 400p TP, with prospects for higher levels when a more ‘normalised’ trading backdrop comes through, or an external bidder surfaces.
Following the number cuts and share price reaction (down 6% at the time of writing), GBG trades on 14x CY23 EV/EBITDA, modestly above peer group median at 13.3x. We believe any re-rating from here would need a growth re-acceleration. We reiterate our 350p TP and Hold rating.
Not great, but not awful We had already taken our numbers materially below consensus over our concerns around forecast achievability for FY23 and FY24 and our conversations with investors had not prompted much surprise, suggesting that this warning will not come as a shock to most of the market. Trends in US identity market in the crypto and fintech space have continued, along with some longer sales cycles. Outside of this, we understand the business is progressing relatively well which should give some encouragement when looking to FY24 when the headwind base effects will have lessened. Cost control has meant that margins have been relatively resilient so the EBITA downgrades will be material, but not catastrophic in our view. Numbers Revenues are expected to now grow c4%, vs the previous guidance range of mid to high single digits underlying for the year, with c.£279m expected. Operating profit is seen to now be c.£60m, including a £3m FX intercompany loan gain. Next year, growth is expected to trend towards high single digits as the year progresses, from the current 4% run rate. Operating profit margins in FY24 are expected to be maintained around the 21.5% expected for FY23. Mathematically (not our forecasts, which are placed under review) 5% growth in FY24 and 21.5% margin (guidance) would imply profit of c£63m. We had already cut our forecasts in our Jan sector note, with our numbers at the low end of consensus. Current FactSet consensus FY23 EBITA is c£67.5m and we are at £62.1m. For FY24, EBITA consensus is £73.8m and we are at £68.3m. Based on this scenario, today’s update would therefore imply a c15% FY24 consensus profit downgrade, or an 8% cut to our forecasts. View We upgraded to Buy in our Jan sector note (here), alongside with our forecast downgrades, believing that once some underpin to consensus was in place (post a potential warning) this would provide a good base to rebuild the investment case. We see today’s update as the first step in this, and, with the fundamentals of the business and market largely intact, we would look to buy on weakness and anticipate a degree of support for the stock coming through as numbers are rebased. Even on the scenario above, the shares would trade on a <20x FY24 PE.
GB Group flagged continued challenging conditions in Identity, particularly in North America, plus some incremental lengthening of sales cycles. We cut adj. EBIT forecasts for FY23/24/25 by c. 13-14%. Given mixed reporting from the tech sector in 2023 thus far, we believe there was a growing expect
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GB Group’s (GBG) CMD should mark the start of the group’s rehabilitation process, after a mis-timed expensive acquisition, collapse of crypto-related revenue and near 60% fall in share price last year. It provided some re-assurance that GBG is well positioned in a market supported by the shift of crime to digital and regulation designed to help prevent it. The caveat is short term trading, which will not be addressed until April. We believe that organic growth should accelerate from FY24E, there is a good chance of another approach (limiting downside), and valuation is close to a 10Y low. Re-iterate Buy.
We expect the growth to be more backend loaded over FY25-26E, given an uncertain macro environment, albeit with easier comps for FY24E. We believe strong sales execution remains key to achieving these targets, especially around geographical expansion and new customer acquisitions. We reiterate our Hold and 350p TP.
Given the challenges of the last year, the CMD was a welcome reminder how attractive GB Group's end markets are, why it has and continues to build a strong competitive position and why the medium and long-term prospects continue to be positive with its enlarged offering and larger US exposure. Whil
Doubling down on industry attractiveness. The 2022 revenue and demand ‘turbulence’ (e.g., crypto) and underlying growth softening sparked some debate around the attractiveness of the market. These near-term challenges have not diminished the group’s confidence on the structural market drivers. Digital Fraud is accelerating, driving all aspects of GBG’s business, setting the case for strong structural industry drivers ahead. Matched with a fragmented market, with ample scope for geographic and sectorial expansion (once the near term headwinds are navigated), there was strong confidence in the resumption of a 12-14% growth delivery. Competitive positioning. GBG has set its stall out as being the best in class end to end suite provider (breath, depth, data sets, product and tech capabilities), which supports pricing, drives competitive wins and offers upsell/cross sell gains. Examples were given of cross sells between Acuant (transactional monitoring, documents verification) and Idology (KYC). Prior to 2022, GBG’s NRR was 105-108%, a level seen as realistic ahead. Combined with a three pronged (direct, partner, self-serve) and maturing route to market, with partner and self-serve to accelerate, this all supports the confidence in the mid- to long-term financial ambitions. Financials. Maintaining market leadership costs with operational leverage beyond 23-24% is limited, with investment required to keep solutions ahead of the pack in an ever evolving digital fraud backdrop. Implied 2026 ambitions are £400m revenue and £100m operating profit. First, however, near term headwinds need to be navigated, with our FY24E below consensus. View. Once consensus aligns, the debate can move to these strategic themes. Even with numbers below ambitions (we forecast FY24E 8% rev growth and 22% margins) the stock looks good value at 400p (c.20x PE), a good starting point with material upside beyond that if faith in target delivery is restored.
We reflect the near-term risks in our valuation multiple and lower our TP from 1,075p to 350p, based on the peer group median of 12x CY23E EV/EBITDA, and downgrade our rating from Buy to Hold. We discuss the key areas of focus at GBG’s upcoming investor day on 19 January.
Edison Investment Research is terminating coverage on Doctor Care Anywhere (DOC), Argentex Group (AGFX), Newmont Corporation (NEM), GB Group (GBG), Abliva (ABLI) and TIE Kinetix (TIE). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our website.
At 12.5x cal’23 EV/EBIT, GB Group is trading at c. 10-year valuation lows. Headwinds in its Identity business, particularly in crypto and internet-economy customers, have driven underlying growth rates to low to mid-single digits this year. It is not out of the woods, but we believe FY23 has been p
GB Group (GBG) reported a mixed performance in H123: strong growth in its Fraud and Location businesses was offset by weaker performance in the Identity business resulting in pro forma constant currency revenue growth of 3.4% y-o-y. Cryptocurrency headwinds and slowing economic growth drive downgrades to our Identity revenues and normalised EPS forecasts. Integration of Acuant is now complete and GBG is showing early signs of leveraging Acuant’s products and technology across the group.
GB Group’s (GBG) 1H results were messy and it was disappointing to see that profits benefitted from a £6m FX gain on intercompany loans. Having already been ~5-6% below consensus, we have downgraded EPS by a further 7% for FY23-24E. The good news is that the structural growth drivers (digital, fraud, regulation) haven’t changed, the crypto drag falls away in FY24E, there are signs of tech and revenue benefits emerging from Acuant, GBG maintains that it is gaining market share, valuation is at a ~10Y low and there is the possibility of another approach. We maintain our Buy rating but reduce our TP to 620p.
GBG’s interims are in line with the disappointing figures from the October trading update. Underlying constant currency revenue growth was only 3.4%, though we estimate that this figure improves to high single digits if we strip out all crypto and ‘internet economy’ revenue. We understand that customer retention rates remain unchanged in the high 90s, and win rates have, if anything, improved. Crucially, we think this points to weak end markets as opposed to concerns about losing market share.
H1 results were as pre-announced. Location and Fraud posted good growth whilst Identity was impacted by cryptocurrency and internet-economy customers, particularly in the US. Outside of these areas, Identity was more stable. The H2 outlook is largely unchanged; the recent £ strengthening and our mo
Numbers. Revenue of £133.8m was up 22.6%, with underlying cc revenue growth of 3.4%. EBITA was £28.1m, with 21% margins in line with the trading update; this includes a £6.2m intercompany loan FX gain, which we expect to reduce moving into H223. Operating cash flow conversion was soft at 70% on a rolling twelve-month basis, due to the non-cash impact of the FX item and an Acuant liability settlement. Without these impacts, the equivalent cash conversion would be 85%, or, we estimate, c.75% for just the H1 period. Identity & Acuant. Identity revenue declined 1.4% cc to £81.2m with the US feeling the brunt of the macro, especially Idology which had material crypto and fintech exposure. EMEA grew c.6%, seeing good customer retention and a positive demand backdrop. Acuant had 21% subscription revenue growth excluding the impact of crypto. Cost synergies of £3m have been realised with the £5m target on track. Headline Acuant numbers were not split out. Location & Fraud. Revenues grew c.10% cc to £34.4m and 14.4% to £18.3m respectively. These were decent growth rates considering the backdrop, with multiple new customers being signed in both business areas and upsells in Location offsetting slower e-commerce volumes from some customers. Forecasts. Changes are largely in line with what we suggested at the trading update (here). They imply mid-single digit H2 revenue growth with modest FX benefit which could leave some upside if FX rates persist and execution is strong. We assume a H2 seasonal margin swing to 24% vs H1 21%, with a part reversal of the FX loan gain. We forecast 10% FY24E revenue growth with modest margin gearing. FY23E: revenue £292.2m (prev.£299.7m) -2%, EBITA £66.3m (£71.9m) -8%, EPS 18.4p (21p) -21%, FY24E: revenue £319.2m (£335.4m) -5%, EBITA £74.7m (£80.5m) -7%, EPS 21.3p (23.8p) -11%. View. We expect the stock to remain volatile as forecasts are being rebased and confidence rebuilds, so stay at Hold for now, with a 400p FY23E PE-based TP.
GB Group (GBG) has experienced a slowdown in parts of its market at the same time as bedding down its largest ever acquisition (Acuant) and having had to deal with the distraction of a possible offer. We have downgraded our estimates to below consensus, following the 1H update. We believe that GBG is a good business, with the potential to return to double-digit organic growth over the course of FY24E, and that it could be the subject of another approach. Retain Buy rating and lower TP to 670p.
GB Group’s (GBG’s) H123 trading update confirmed strong growth in its Fraud and Location businesses, offset by weaker growth in the Identity business. Pro forma revenue growth of 10% included a 6.5% currency benefit. While the board maintains its expectations for FY23, we have trimmed our forecast to reflect the weighting of growth across divisions, reducing our normalised EPS forecast by 1.7% in FY22, 1.2% in FY23 and 1.3% in FY24.
H1 was complicated by acquisitions, one off revenues, crypto headwinds and FX movements. Simplistically, underlying revenue growth was c. 10%, including a 6.5% fx tailwind. Whilst Location and Fraud delivered double-digit, constant fx growth, Identity, as anticipated, faced headwinds from crypto vo
Headlines GBG’s scheduled H123 update highlights a mixed business performance in the more challenging backdrop. Organic constant currency growth was 3.5%, someway below the group-level >10% it has posted for many years. FX helped offset this on a reported basis, with reported pro-forma revenues up 10%. Location and Fraud had the best outturn, seeing impressive double digit organic constant currency growth. This implies that Identity declined by low single digits, with the US seeing the greatest declines. Operating profit margins are expected to be 21%. Net debt was £132.6m (£107m FY22) with a £22.6m translation headwind on the $ outstanding debt balance. Overall debt paydown since the Acuant deal has been $45m. Closer look at Identity The US business appears to have declined by mid-single digits, which we understand was due to volume reductions, with no notable client losses in the period. Crypto was especially weak, seeing greater declines than expected even after stripping out the one-offs from last year. The Fintech (eg payments) client base also saw material volume weakness. We expect Acuant outperformed other areas of the GBG’s US Identity business, being more diversified by end client. Excluding Crypto, we suspect Acuant delivered reasonable single digit growth, albeit some way below c25% aspirations at time of acquisition. Outlook The group is maintaining FY23 expectations, which in our view implies a c6% FX benefit making up for an effective underlying revenue miss, due to volume weakness across parts of the client base. The implied H2 outlook is for improved growth towards high single digits, which requires conversion of pipeline new customers, upsells, continued >10% growth in Location and Fraud, and that the macro backdrop does not deteriorate any further with volumes stabilising. We see some risk to the latter point with the macro still uncertain. GBG has good cost levers and we suspect many of these are already in play to protect profits. View We place our forecasts under review ahead of the H123 results, but suspect that we will be moving our revenue forecasts down to build in a cushion against any further potential macro headwinds. We envisage a potential c.5-10% EPS cut, accounting for higher interest costs (US rates) but also conscious of the cost controls vs previous budget levels we expect the company is already deploying to protect profits. We place our TP under review, but retain our Hold.
Price is everything. Our reading of market sentiment over the last month was that levels of over 800p/share would be needed to develop a credible process. With GBG in a solid position, there was no underlying reason for the business to be sold. It is not in a financial or strategic crisis, quite the opposite. Combined with historic share price levels and the 725p Acuant placing ‘floor’, demands for an exit price of over 800p would seem very logical to us. Higher bid multiples becoming more difficult? On the flip side, over 800p would represent an EV/EBITA of >28x on forecasts which, considering the macro backdrop, could contain some modest risk, albeit current FX levels will provide a material cushion. Along with the rising cost of debt a potential purchaser would facing in funding a deal, this may discourage interest for now at credible price levels. Focus back on current trading. We expect the H123 trading update, due in a couple of weeks’ time, to signal an H2-weighted story, as previously discussed (see ‘Resilience and growth’ 20 June). In addition, the AGM statement pointed towards the US market softening, which is not a great read-across for Acuant, although USD strength will clearly give some decent forecast support. Valuation. We expect the stock to retain some of its bid premium for now, but this needs to be set against trading patterns on the ground, which we expect to show signs of strength but also some softness, depending on region and business area. We adjust our valuation to more fully reflect the current sector ratings, with our 520p TP based on c25x FY23E PE (equivalent to 17x EV/EBITA), and we move to Hold.
GBG has confirmed that GTCR is no longer considering a cash offer – an agreement could not be reached on terms. With the shares now only 7% higher than they were before press speculation about the bid emerged, we see this as an attractive entry point for one of the UK’s best software assets. Moreover, we highlight that in the absence of a sale, current holders will benefit from the anticipated acceleration/expansion of growth and margins as Acuant becomes fully integrated and the revenue base becomes increasingly US-weighted. BUY.
GBG shares have pulled back on the news that GTCR does not intend to make an offer. Focus now will shift back to trading (update 20th October) and Acuant, on which management need to start demonstrating proof points. We view GBG as an attractive asset – it is the pure-play leader in identity verification, a market with good long term growth potential, supported by the growth of digital interactions in society, the shift from physical to digital fraud and legislation. We retain our Buy rating and 740p price target.
Thoughts on GBG becoming a takeover target GBG has leveraged its London listing to go from c.£22m revenue in 2010 to c.£318m in 2023E. We see no reason why it cannot continue on this journey. However, given the global tech pull-back, a number of UK tech listings are being bid for. It is therefore no surprise that GBG is being considered by US PE house GTCR. In this note, we frame our views around the bid, posit why the price will have to be above 725p (November 2021 placing price) and the reasons as to our DCF-derived target price of 1,075p as reasonable for the right strategic buyer. The shareholders deserve the premium for decades of support. Damindu.Jayaweera@peelhunt.com,James.Lockyer@peelhunt.com 10-page note
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GBG has confirmed that it is currently considering a possible cash offer from GTCR, a private equity business, which has until 4th October to make an offer. Given that there have been five recent trade buyers (other than GBG) of fraud and ID verification assets and that there are other private equity investors in the space, it is possible that this could lead to other approaches. The shares have rallied from early July’s low and will obviously trade higher today. Our DCF-based valuation is 740p.
GBG has confirmed press speculation that Chicago-based PE firm GTCR is considering a possible cash offer for the company. We reiterate our view that GBG is one of the UK’s best Tech companies, and think the current valuation does not reflect the potential growth/margins of the group. Both factors are set to improve due to the inclusion of Acuant and increasingly US-weighted revenue exposure. The EV/Sales and P/E multiples of 4.6x and 25x respectively stand at 23/26% discounts to the 5-year averages. As such, we remain staunch buyers.
GB Group’s AGM trading update confirms that the Fraud and Location businesses have seen solid underlying growth year-to-date. A tough comparative period for the Identity business has been partially offset by the favourable US dollar translation effect. With broad geographic coverage and the need for identity and fraud solutions across different sectors and economic cycles, the board anticipates FY23 results in line with its expectations, despite current economic uncertainty.
Reassuring AGM statement
GB Group (GBG) reported strong underlying revenue growth for FY22 while profitability growth reflected the resumption of investment in the business. GBG has demonstrated the ability to navigate challenges with its performance over the COVID-19 pandemic and we view its diversified business (by geography and vertical) as a strength in an uncertain market environment. Our forecasts are substantially unchanged and in our view the valuation has become increasingly detached from the company’s growth potential.
Results presentation. The focus was on Acuant integration, which is progressing well, bringing it together with IDology to be the largest pure play in the Americas. This should help the cross-sell across both portfolios. An accelerated product, data and platform strategy will further extend competitive differentiation. The £5m synergy plan is on track, with £3m implemented. As outlined in our FY22 note (here), the three divisions of Fraud, Location and Identity all saw good trading. Outlook. This is key considering the changing macro backdrop. As in every year, GBG will need to drive new customer wins, and have the installed base see higher volumes themselves which feed through to higher GBG revenues. Inflation may help pricing a bit, but it’s generally a volume game, due to the competitive nature of the backdrop. Geographic and vertical diversification should mean some areas outperform, making up for others if there is any impact from potential consumer spending headwinds, albeit the shift to on-line should still continue. The track record to date suggests the business can manage cycles well, but considering the backdrop, we maintain our prudent approach to forecasting. Numbers. We had already factored in c.£10m of FY22 one-offs (c.£6m crypto, £4m US stimulus) not recurring in FY23E (this still implies c.£7m underlying crypto continues) and have assumed c10% organic growth. This organic growth level is below the group’s 12-14% target, but we see this as sensible until we get a better view on H2, considering the weighting due to normal patterns and the strong H1 comparative. For Acuant, we maintain the 25% growth target, with H2 set to be very important as the integration benefits flow through fully. GBG has good cost flexibility, being able to phase its investment programme to revenue trends, so this should give decent profit support across a range of revenue outcomes. FX at current $ rates will also add support to reported numbers. View. We reduce our TP to 650p, now basing this on 27x FY24E PE after factoring in the multiple compression seen across the sector. Buy retained.
We like GBG because it is a leader in identity (ID) verification, a market supported by the growth of digital interactions in society, the shift from physical to digital crime (US ID theft has doubled since 2019) and legislation. The share price reaction to final results was harsh but reflects the investment community’s desire to see proof points on Acuant (a touch light) and concern regarding the sustainability of growth (2H weighted in FY23E), going into a consumer slow-down. The shares now trade near 9Y valuation lows. We retain our Buy rating but reduce our DCF-based target price to 740p.
GBG’s FY results were slightly ahead of recently upgraded expectations. Whilst we are cautious of the reversal of the crypto tailwind from Q1 last year (which will likely be a headwind at present), our FY23E revenue estimate implies underlying growth of 13%, which compares with the 15.5% just delivered. Moreover, the positive mix-effect from Acuant (growing at c25%) will drag growth higher, and we have not factored in the likelihood of an FX tailwind. As such, we remain bullish on the likelihood of further upgrades. BUY.
GBG’s FY’22 results showing total revenues of £242.5m and adj. EBIT of £58.8m are slightly better than pre-announced figures in April. Organic, constant fx growth was 10.6% despite a very strong comparator year. We upgraded our FY23 and FY24 forecasts at the time of the trading update and make only
GBG FY22 results: as expected The trading update meant headline figures were unsurprising. The outlook, while cautious around a tough 1H23E comp, does not warrant forecast changes yet. Off the pro-forma base, our FY23E forecast is for 9% growth in a year GBG believes it can do some RPI+ price increases. When we consider 2H22 underlying growth was c.11%, unless the economy deteriorates faster, 9% is a reasonable FY23E forecast for a company that might find new growth vectors in a recession (eg wider adoption of affordability testing). With the stock at 16x CY23E EV/EBITDA, we remain cautious Buyers given its quality. Gautam.Pillai@peelhunt.com, Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com 4-page note
FY22 results in line FY22 results were in line with revenue up 10.6% organic cc to £245m, and £58.8m EBITA at a 24.3% margin. Cash conversion was 95.7% with net debt of £107m. Within the mix Location was up 13% with a strong year buoyed by on-line commerce. Identity grew 17% stripping out the impact of the US stimulus in the prior period. There was strength across the board, but particularly supported by Crypto (£4m in H1), financial services and gaming. Fraud rebounded from the weak COVID impacted FY21, with revenues up 16%. Acuant performed largely in line with £12.3m revenue (net of £1.3m deferred revenue haircut) and a breakeven performance, after adding back c.£0.4m one off costs. Outlook We leave our forecasts intact ahead of the results call. We are forecasting c.24% EBITDA margins going forward, similar to FY22 but with absolute revenue growth ahead of cost growth this should provide some opportunity for margin leverage, implying our forecasts are well underpinned. There are headwinds of >£8m based on crypto and US stimulus that is unlikely to reoccur in FY23, which we have already built into our forecasts. Additionally we suspect some verticals may see slightly less volume due to the macro backdrop but this should be made up by the group’s broad geographic and vertical diversity allowing the business to hit its 12-14% growth target. This broad coverage should add to GBG’s competitive differentiation during the year. On the cost side we suspect there is room for investment to be more phased, if required, and as we have highlighted there is already headroom in our margin estimates which builds confidence for the year. As flagged, it will be an H2 weighted year due to the strong compares and Acuant performance accelerating through the year as the benefits of the integration feed through. View While GBG is more consumer exposed (transactions are second order derivative through its end customers customers) than much of the tech sector that is largely enterprise B2B spend, while GBG’s geographic and vertical diversity, together with its cost flexibility, places it in a good position to benefit from a number of strong industry growth drivers. We remain Buyers.
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GBG is a B2B business operating in a market with good structural growth, supported by the growth of digital interactions in society, fintech, the shift from physical to digital crime (US ID theft has doubled since 2019) and legislation. As flagged in our recent initiation note, Identity Guru, last week’s update has provided reassurance on short term trading and prompted upgrades to consensus. The stronger US$ (50% of revenue) also helps. We remain ahead of consensus for FY23/24E, retain our Buy rating and 830p price target.
GB Group (GBG) expects to report revenue and adjusted operating profit for FY22 well ahead of our and consensus forecasts having seen a strong performance across all three divisions in H222. We have raised our forecasts to reflect this strength, with EPS upgrades of 5.4% for FY22, 1.9% for FY23 and 1.6% for FY24. In our view, there is a widening discrepancy between the company’s growth potential and its valuation.
Ahead of expectations
FY22E trading update: another beat In October, we upgraded FY22E core adjusted EBIT 12%. GBG has now come in ahead, and despite a 4pp acquisition accounting headwind, the beat at group level is 8%. The key driver is the 15% underlying growth (PHe: 10%), pointing to a strong 2H. Driving this is the fintech-led DX revolution in FS, and the D2C momentum in retail. Recovering new customer momentum is a telling sign of the quality of the beat. GBG is off 41% from its two-year high, largely down to an unwarranted 49% NTM EV/Sales de-rating. We upgrade FY23E adjusted EBIT by 2% for now, and reiterate our Buy rating. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com 2-page note
Revenue. Sales were £242m vs our £233.8m, including c£13m from Acuant and Cloudcheck, and a c$2m deferred revenue haircut. Organic cc growth is c10.5% but, adjusting out last year’s flagged one-off US stimulus, underlying growth was c15%. This implies c12-13% in H2, a good outcome, especially as it was driven across the business, with customer spending patterns largely normalising and structural drivers continuing to spur demand. H1 underlying growth was 17%, with this off a weaker comp as flagged at the time. Profits and cash. Operating margins are expected to be c24% with no less than £58m of profit vs our £54.4m, a very solid result. This is also after the impact of the deferred revenue haircut, with underlying likely to be towards c£60m. Year-end net debt is £107m, in-line with our estimates, despite the additional cost of the Cloudcheck acquisition in January. Acuant. Integration is on track with £3m of cost synergies already deliverable. A remaining £2m will come from efficiency savings and revenue synergies during the year. We understand the teams are already well integrated with objectives set. A major strategic initiative has been the formation of a Global Products group to bring together the key areas of Fraud and IDV roadmaps, using the strengths of the Acuant and IDology combined businesses, which now make up the largest pure play Verification player in the Americas. Forecasts. We update FY22E for the trading update, but leave FY23E unchanged although we see it as well underpinned. Pro forma revenue of £275m on 12-14% growth, less c£8m from the one-off stimulus at 24% target margins is well within our FY23E estimates. The market backdrop is strong and it will be down to execution of organic growth and Acuant delivery. View. The tech sell-off has put the stock back three years, despite it now being an even stronger, broader, and thus more compelling story. The valuation leaves plenty of scope for upside re-rating as execution comes through.
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GB Group (GBG) is a well-positioned provider of digital identity verification services, a market that is benefitting from the increase in fraud and is expected to grow at a 10-12% CAGR to 2025E. The shares have fallen by 36% since last November’s acquisition of Acuant (on the placing and subsequent de-rating of growth stocks), but operationally not much has changed. Our sense is that the Acuant integration is going to plan. We expect forthcoming announcements to act as a catalyst for better price performance and the shares offer good long-term potential for growth and value creation. We initiate with a Buy rating and 830p price target.
Appealing headline terms GBG has announced the acquisition of Cloudcheck, a leading SaaS provider of electronic Identity Verification and Anti-Money Laundering solutions in New Zealand. The price paid is NZ$20m (c£10m), paid with NZ$12m cash and NZ$8m in shares. An additional NZ$4m will become payable in FY23 and FY24, subject to revenue growth hurdle rates. Cloudcheck is expected to deliver cNZ$5m revenue and NZ$2m EBITDA to March 2022, which would value the business on c4x revenue and 10x EBITA and is expected to be immediately enhancing before synergies, making it a financially attractive deal. Clearly, the price paid will increase if deferred consideration is payable, but this will be on strong growth performance of the business. Strategic rationale mimics previous sensible tuck-in deals This increases GBG’s critical mass in Australasia, in-line with its geographic expansion ambitions and will complement GBG’s existing Verification operations in Australia, built up through the previous Vix Verfiy acquisition. GBG will be able to funnel its international data set through Cloudcheck’s platform, enabling the offer of additional verification and anti-fraud capabilities. We see this as a sensible deal to build up a local presence in targeted international markets and broadening out GBG’s upsell opportunities, mimicking many of GBG’s historic successful tuck-in deals. Forecast impact Pre-synergies, Cloudcheck is expect to deliver c£1m EBITDA. If we were to assume modest synergies and some growth, we estimate it could uplift FY23E EBITA by c1-2%. The additional shares to be issued are immaterial versus the overall share count. We leave our forecasts unchanged at this stage, waiting until the FY22 trading update in April to gauge progress on the underlying GBG, Acuant and Cloudcheck so we can incorporate all potential forecast tweaks at the same time. View We see the sell-off in the tech growth names, also impacting GBG, as offering a good buying opportunity for a stock exposed to material long-term structural growth drivers, and see continued earnings momentum ahead to support the shares in more stable markets.
Identity verification acquisition in New Zealand The small tuck-in acquisition in New Zealand should help accelerate GBG’s presence in the country while complementing the broader Australasian identity strategy. Although a c.£10m consideration for an accretive acquisition is a rounding number given the size of recent acquisitions, we believe the team on-boarded in New Zealand will add value by helping GBG broaden its presence. Given the strategic progress it has made since 2017, we see no reason why GBG should trade at 2017 NTM EV/EBITDA levels. We therefore believe this to be an attractive entry point for the stock and reiterate our Buy. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
GB Group (GBG) reported a strong performance in H122, with organic constant currency revenue growth of 12.6% y-o-y and an adjusted operating margin of 25.5%. The Acuant acquisition completed on 29 November and the group’s immediate focus is on combining the two companies and pushing forward with growth plans. Our forecasts are substantially unchanged.
GBGs interims are in line with the upgraded expectations set out in the October trading update. Whilst near-term accretion is unexciting (FY24E EPS +2%), the £547m acquisition of Acuant should accelerate the medium-term revenue growth profile from 10-12% pa to 12-14% pa, in addition to moderately improving margins. Equally importantly, the deal bulks up GBGs offering/scale in the critical US market and the cloud-first/omnichannel architecture accelerates the product road map by c2 years. BUY.
Interims as expected; confident outlook
1H22 results – strong trends The results contained no surprises given the trading update. Nevertheless, the 17.6% underlying growth is a reminder of GBG’s strengths. Despite some reversal of Covid-savings, margins only moved by –c.40bps given slow hiring and exceptional revenue. Despite a number of upside trend-risks (eg crypto, D2C ecom, gaming recovery etc) we keep our forecasts broadly unchanged. The big news is the Acuant acquisition, which we conclude will be additive to both near- and long-term growth. Given its valuation, we continue to believe GBG is the best listed-play on a multi-billion market for solving “Trust”. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
Headlines. Revenue +12.6% organic cc, with ‘underlying’ c18% growth after the c£7m headwind from the largely non repeat US stimulus activity in H121. Operating profit was up 3.5% to £27.8m with investment coming back post the COVID-19 pause. Cash generation was 113%, with £39.5m net cash. Divisional trends. Location, which is c27% of group, grew c15% cc to £29.9m with the accelerating shift to digital channels for retailers. Identity, c58% of Group, grew 10.4%, despite the net £7m headwind from US stimulus impact, driven by a resilient financial service vertical and buoyant Crypto (+£4m) and Gaming end markets. Fraud revenue bounced back off the weak compare, up 17% with a number of key contract renewals and some new customer wins. Profits. Operating margins of 25.5% are above the c23-24% target. Hiring costs moved slower than anticipated and the Crypto revenue boosted profits. We expect margins to moderate as investment, post the COVID-19 pause, gathers pace. We forecast c20.9% H222 with FY22E at 23.3% (incl. Acuant). Acuant. The deal did not fully match GBG’s prior M&A script; it was strategically compelling but not earnings accretive, with the valuation reflecting the current M&A market for growth assets. As we have commented previously, we judge an element of M&A ‘upgrade’ is ‘factored’ into the GBG valuation, so the earnings neutral deal took some wind out of the stock. It’s time to regroup, focus on the strategic merits and look for strong financial delivery ahead. Forecasts. We update for H122 & Acuant. FY22E Rev £233.8m (prev. £210m) +11%, EBITA £54.4m (£48m) +13%, EPS 18.8p (18.3p) +3%; FY23E Rev £298.0m (£231m) +29%, EBITA £71.7m (£53m) +35%, EPS 20.9p (20.8p) +1% View. We previously factored in an element of accretive M&A into our scenario TP methodology due to the Group’s track record. We move to a FY23E PE TP of 1000p, reflecting growth delivery and scope for medium term upgrades.
We are positive on GB Group. Its Identity, Location and Fraud solutions address a large, global market with structural demand drivers accelerated by the pandemic. We believe the Acuant transaction, whilst not immediately accretive, makes the group a better business, increasing its addressable marke
GB Group (GBG) has announced a conditional agreement to acquire Acuant, a leading player in the US identity verification market. At an enterprise value of £547m, it marks GBG’s largest acquisition to date. The deal strengthens GBG’s position in the US, broadens its product offering and accelerates its technology roadmap. We have revised our forecasts to reflect the placing and the acquisition and our normalised EPS forecasts decline 3% in FY22, are flat in FY23 and increase 3% in FY24.
Strategic stepping stone to global dominance GBG acquired Acuant on 19 November for c.2% CY22E FCF yield, giving it the US leadership position in end-to-end ‘identity verification’. We believe Acuant’s patented tech (eg eDNA) will not only unlock the adjacent ‘identity fraud’ opportunity, but also move GBG’s tech forward by two years across SaaS, low/no-code, etc. Importantly, we see this as the greatest boost to GBG’s ability to crack the identity intelligence opportunity across Europe and APAC. While FY23E accretion is just 2%, we present a bull case for more material upside by FY24E. Our DCF-derived TP rises from 1,054p to 1,075p. Reiterate Buy. Damindu.Jayaweera@peelhunt.com,James.Lockyer@peelhunt.com,Oyvind.Bjerke@peelhunt.com
The scale and shape of Halfords has fundamentally changed. Huge progress has been made in becoming a motoring and service led business, assisted by the strategic focus on growing digital, Services and B2B. Digital has grown to 33.9% of Group 1H21 sales (FY18 17%), helped by combining all the Group’s businesses on one website, under one branding, in a connected ecosystem. Services/B2B accounted for c.50% of Group 1H22 sales (FY18 under 30%) with these revenue streams being less volatile and more sticky. Emerging from the pandemic with stronger financials. The focus on higher returning revenue streams and a restructured cost base means Halfords has a more resilient sales base and a higher sustainable margin structure. Built a unique position in the motoring market. Halfords has successfully scaled Autocentres, doubling the number of motoring service locations to 738, aided by 3 astute acquisitions and using technology to build a competitive advantage. It can uniquely offer a full suite of service/repair across its garages, retail stores and mobile. Halfords is also the only retailer that can offer repairs to all types of electric cars, bikes and scooters. Transformation is far from complete, although most of the infrastructure heavy lifting has been done. Investment continues in a range of strategic initiatives that we believe will drive long term growth, such as motoring price investment, ‘Project Fusion’ trial, the launch of a motoring loyalty programme in March 2022 and leveraging its proprietary Avayler software. Market Valuation (CY22E PE 9.7x) does not reflect HFD’s recovery/growth potential, nor the strength of its cash generation and balance sheet. Halfords is well-positioned to take a greater share of the highly fragmented motor repair market, as well as benefit from a structurally growing cycle market.
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Paying up for growth and strategic fit GBG has announced the proposed acquisition of Acuant, a US Identity Verification and Fraud prevention player, for £547m, c12x LTM revenue and c60x EBITA. An estimated c25% sales growth and margin accretion to c22% from 20% would equate to c40x EBITA. This is a high valuation mark vs GBG’s prior acquisitions, but reflects the reality of the M&A market for high growth assets in this space. The clear and compelling strategic fit, from product, technology and geographic reach perspectives, together with GBG’s commercial relationship with Acuant built up over recent years, gives the company reassurance that it is a price worth paying. It is being financed by a c£300m equity raise (at 725p, a c.17% discount to the closing price on 18 Nov), £87m share issue to the vendors (management rolling 28% and PE 19%), £155m partial drawdown and B/S cash, with leverage c2x on completion, which we estimate will fall to c1x during FY23E. Merits Acuant’s strengths are in the initial Document Verification stage (6,000 documents, 200 countries/territories) and GBG majors in the next step of data validation, thus giving GBG a broader range of end capabilities. It also brings technology benefits, such as an orchestration layer (one gateway into products) and a Fraud SaaS Cloud-based platform, both areas GBG was looking to develop itself. These capabilities all lend themselves to being cross-sold across GBG. Without doubt, the primary strategic rationale is doubling up in the US, the largest Identity Verification market, with the US now GBG’s largest geography. Financials Subscription is c70% of the business and accelerated to c40% growth over the last twelve months, from a 3 year average of c36%. Recent increased direct sales hires, the rate of expansion of current customers and new business potential gives the group confidence it can grow revenues at c25%. By FY23, there will be c£2m of cost synergies (real estate, overlapping functions, combined sales hires) with incremental revenue drop-through reinvested for growth, and margin aspirations of c22%, albeit an estimated £3m revenue synergies should give further margin upside scope. This equates to a neutral impact on FY23E EPS, but we would hope for some outperformance, both from GBG, based on our conservative estimates, and from Acuant. Our View The strategic merits are clear and execution on financials will underpin the valuation. We retain our Buy, placing our forecasts under review; we will update for the acquisition at the time of the upcoming H122 results.
Strong update; Upgrades
GB Group (GBG) confirmed that its Identity business continued to benefit from a number of exceptional volume drivers in H122, resulting in 12.4% y-o-y organic constant currency revenue growth and a 25.2% operating margin for the group. With management expectations for H222 unchanged, we upgrade our forecasts to incorporate these windfall revenues and slightly better growth in the Fraud and Location divisions.
1H21E trading: In upgrades we ‘Trust’ Exceptional volumes, coming both from US stimulus and crypto, have again delivered a positive surprise in Identity. Location has benefitted from the volume ramp of FY21A new wins, and Fraud is starting to stabilise. We upgrade our FY22E adjusted EBIT 12%, factoring in the hiring ramp. GBG is doing all the right things, and the end market is moving its way. Considering the TAM opportunity, we believe GBG remains one of the best UK-listed tech stocks for the long-term investor. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
A strong H122 update H122 revenues and profits are expected to be £109m and £27.5m respectively, comfortably ahead of our and the group’s expectations. Excluding disposals, this represents a healthy 12.4% organic sales growth and reported profit growth of 3%, despite the challenging comparatives in the Verification business. Cash conversion was strong, with £39.5m net cash at period end. Positive trends Despite the strong H121 for Verification, buoyed by >c£10m of revenue related to the US Stimulus package, the division still posted good H122 growth due to the second stimulus package impact and a boost from Crypto related volumes during some months in the period. In total this amounted to c£7m more revenue than anticipated. Despite a still small like-for-like headwind, strong ‘underlying’ momentum meant the division still reported double digit growth, as implied by the group’s overall c12% organic revenue growth. This figure was also supported by Location continuing the momentum seen in Q421, as these wins delivered a full period contribution, as well as new customer deals. Fraud, as expected, bounced off the low base of H121 with client spending starting to recover. Forecasts and view We place our forecasts under review and will update with the figures at the H122 results. We judge that the £7m incremental revenue achieved will contribute to a full year upgrade and, with clear momentum in the business, we would see up to c£220m FY22E revenue as a realistic target. Considering the investment plans of the business, we expect opex to step up in H222 and, as such, foresee a low to mid-single digit million upgrade at the profit line, but will look to gauge this more accurately at the interim results. This suggests our FY23E forecasts look well underpinned. We continue to see GBG as a compelling structural growth play, and reiterate our Buy.
In today’s AGM trading update, management confirmed that it had seen a good start to FY22. All divisions are benefiting from the consumer shift to transacting online. Cryptocurrency trading has boosted Identity volumes in the quarter, while Location continues to see good demand and recent licence extensions point to a recovery in the Fraud business. The strong trading in Q122 provides management with confidence for the year ahead; we maintain our forecasts.
Good start; On track
AGM update – strong trends GBG has seen “strong” 1Q21 trading across the group. Customers from crypto and ecom domains have helped the Identity volumes remain strong. This likely translates into YoY growth, which we take to be a net positive given the tough comp (US stimulus and FX). Location continues to do well and, as expected, Fraud recovered with material deals from existing customers. Cash conversion also remains good. The recurrence of the word “strong” in the statement is indicative of increased confidence. Therefore, we believe investors should be taking advantage of the current irrational drift in the share price. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
GBG's FY21 results contained few surprises. Underpinned by the ongoing strength of the Identity division (especially in North America), organic revenue growth of 12% compares positively with expectations of a c10% revenue decline a year ago. Operating profits have increased by 21%, and 120% cash conversion has brought the business back into net cash. Our estimates are substantially unchanged, but we believe that earnings risk remains to the upside for what is arguably one of the UK's highest quality software businesses. BUY.
GB Group (GBG) reported FY21 results substantially in line with our recently upgraded forecasts. In a difficult year, GBG managed to grow revenue by 9% (12% on an organic basis) and EPS by 21% while repaying all debt. Management has returned to a growth footing, investing in product development and sales capacity while continuing to seek acquisitions that could expand product or market coverage. We have upgraded our normalised diluted EPS forecasts by 3.1% for FY22 and 2.0% for FY23 and introduce a forecast for EPS growth of 9.3% in FY24.
FY21 results – trusty tailwinds GBG ended FY21 with 12.1% org. cc. growth as flagged at the trading update. Despite continued momentum in areas such as crypto/US gaming, return to growth in UK Identity, improving APAC Fraud, more multi-local customer wins and low-growth disposals, our FY22E forecasts are unchanged, reflecting continued macro volatility. We think the new vision statement “to build trust in a digital world” reflects an elevated ambition. Digitalisation will eventually force online $30trn B2C transactions, where trust needs to be established. That is GBG’s role, and is why we continue to reiterate our Buy rating. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com 2-page note
Record FY21 results
GB Group (GBG) expects to report revenue, adjusted operating profit and net cash ahead of consensus for FY21, with strength in the Identity and Location businesses outweighing slower business for the Fraud division. We have upgraded our FY21 forecasts to reflect this and revised our FY22 and FY23 forecasts to reflect the disposal of Employ & Comply at the start of FY22.
Positive YE Update
Trading update: impressive end to FY21E GBG ended FY21E with revenue of £217m (PHe £213.0m), adj EBIT of £58m (PHe £53.1m), and impressive cash. US Identity growth of 30% (ex. US stimulus) was enough to tie the US with the UK for size. The trends are well known; while there is still macro-uncertainty (eg UK Covid-impacted sectors), some trends remain strong enough (eg crypto) to drive upgrades in the coming months. For now, we make no changes to our GBG earnings forecasts. GBG has truly come of age at a time when digitalisation of customer journeys has accelerated. We remain huge fans, and the next leg of GBG is about to begin. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
Headlines. Revenue is up 9% (organic cc) to £217m with EBITA of £58m vs our £215m and £53.9m and consensus of £213.2m and £53.5m. Cash was strong at £21m (FY20 £35m debt) vs our breakeven estimate, driven by higher profits and strong working capital management. FY21E revenue £217.1m (£215.1m), EBITA £58m (£53.9m), EPS 22.6p (20.9p). We leave FY22E unchanged. Trends. We estimate, adjusting for the ‘one-off’ stimulus and FX, that ‘underlying’ revenue growth was mid-single digit, which would imply an acceleration in H2 vs H1. US stimulus, fintech, and we expect the bitcoin/share trading surge referenced in the February update, all contributed to Verification finishing strongly. Location was boosted by higher online purchasing. This all more than compensated for the declines in Fraud as previously referenced, with its on-site implementation model impacted by the pandemic. Outlook. While we upgrade FY21E profit by 7%, we make no changes to FY22E at this stage where we factor in a fall back in profits. There are a number of moving parts to consider. The material FY21 profit impact from the US stimulus will likely be much smaller in the coming year; the now tough comps for online purchasing combined with the easing of lockdown pushing volume back to the high street (potentially lower Location volumes for GBG); and the full year impact of the resumption of the investment plan and FX. We are also waiting for the FY21 results to get the financial details of the two small disposals the group announced this quarter, which we estimate to be c£2m of profit, and will update our forecasts accordingly. View. While FY22 may see a pause in profit growth given the strong yoy comparative effects we have outlined due to the impressive FY21, strength of the business through the pandemic and overall secular trends moving in GBG’s favour towards greater online/digital activity, supporting an attractive long-term outlook for the business, in our view. We retain our Buy & 1050p scenario-based TP.
GB Group (GBG) has announced it has signed an agreement to sell its Employ and Comply (E&C) business to First Advantage, a specialist in background and employment screening, for an undisclosed amount. This follows on from the disposal of the marketing services business in January, as the company streamlines its portfolio to focus on its three core global capabilities: Identity, Location and Fraud.
Non-core disposal GBG’s intention to hone the future roadmap by disposing activities it no longer deems synergistic is no secret (eg, January’s disposal of marketing services). Disposal of its UK employment screening business to the global employment screening provider First Advantage should therefore surprise no one. Given we had already anticipated this, we make no changes to our forecasts. Implied organic growth for FY22E, when FY21E is adjusted for this disposal and c.£14m of one-offs, is c.10%. As detailed on p62 of our recent sector note, we continue to believe that GBG is one of the best structural growth stories in the UK. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
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.
Positive update; EBIT 16%+ ahead of consensus
Trading update – supercharged volumes Given the take-up of both stock and crypto trading by retail in recent months, we knew GBG’s identity division was going to benefit both in the US and Europe. This was confirmed today, with GBG announcing at least £213m of revenue and profit of £53m for FY21E. Excluding these exceptional volumes (which includes the US-stimulus related ones), underlying growth will still be flat, and therefore our underlying growth assumptions for FY22E (6% c.c.) remain unchanged. That said, at a headline level, this results in a 36% upgrade to our FY21E earnings. We leave our FY22E forecasts unchanged for now. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
CFO succession plan Having been instrumental in delivering a total return of 5,500% since joining GBG in March 2009, CFO/COO Dave Wilson is set to hand over the baton to David Ward who many will know from his time as CFO of the FTSE 100 tech company AVEVA. We believe David Ward’s experience as a key member of AVEVA’s globalisation, product, operations and M&A journey, will be invaluable for executing GBG’s strategy. We remain excited by the opportunity ahead, and reiterate our Buy rating. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
GB Group (GBG) has sold its marketing services business to HH Global Group for an undisclosed amount. This was not an area of focus for GBG and has been in managed decline for several years. Just before Christmas, GBG boosted its Fraud business with the acquisition of fraud investigation automation software from HooYu for £4m in equity. We have revised our forecasts to reflect the disposal and acquisition, leading to small upgrades to our EPS forecasts. Both deals emphasise the company’s strategy to focus on Identity, Location and Fraud.
Sales of the non-core marketing services GBG today announced the sale of its non-core Marketing Services division, which we knew to be on the disposal agenda. We believe it has weighted on both growth and margins since FY17, and today represents just c.2% of FY20 revenue. Given its non-materiality to our forecasts, and the likely immaterial sale proceeds, we make no changes to our financial forecasts. From a strategic perspective, this focuses GBG more towards the ‘Trust’ offering across location, identity and fraud. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
Strengthening Fraud Product Portfolio GBG is to acquire HooYu Investigate, a UK-based innovative and scalable antifraud platform, by issuing c.447k shares, for a total consideration of £4m. Importantly, the acquisition brings HooYu’s developers with it. We believe GBG’s fraud portfolio lags the modernisation seen in the other divisions (eg ease of deployment), which this acquisition should help address. We also believe, in time, this will help broaden the customer base tapped by GBG’s Connexus product. HooYu’s product will be upgraded to GBG standards of enterprise grade compliance, etc. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com
GB Group’s (GBG’s) H121 results were in line with its recent trading update, confirming revenue growth of 10% y-o-y and normalised EPS growth of 25% y-o-y. COVID-19-related cost reduction and cash preservation measures helped reduce net debt by £32m h-o-h. FY21 revenue guidance is unchanged and the company expects to return to more normal levels of investment (both opex and capex) in H221. We have made small upgrades to our forecasts.
H1 21 results – Always TRUST to deliver strong metrics As flagged at the trading update, despite >14% exposure to Covid-19-challenged verticals, GBG delivered 10% organic growth and margins that were better than last year (including H2). TTM cash conversion at 121.5% was well above the c.95% rate we usually expect. Despite H1 benefiting from a one-off in US Identity, Fraud still finding it difficult and Location ticking along, we believe the risks are now to the upside. GBG will rightly continue to reinvest some of the H1 margin in H2. Having upgraded recently, we pause to better assess the vaccine implications. Tails-winds have definitely strengthened. Damindu.Jayaweera@peelhunt.com, James.Lockyer@peelhunt.com, Oyvind.Bjerke@peelhunt.com 2-page note
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.
GB Group reported strong performance in FY20 and started taking measures to preserve cash in Q420. Trading in Q121 has been mixed and while management is unwilling to provide guidance for FY21, it has confidence that in the longer term it is well positioned to benefit from the acceleration in digital transformation that should drive demand for its identity data intelligence services. We have upgraded our EPS forecasts by 5% in FY21 and 3% in FY22.
Numbers. Revenue +10.7% organic cc to £199.1m, with £47.9m profit. FY20 net debt £35m, at 0.7x leverage with 95% cash conversion enabling £24.9m debt repayment. End May net debt is £20.1m and leverage 0.4x. As previously indicated, a dividend will not be paid and forecast guidance is removed. FY20. It was a strong year with 11% cc organic growth with Identity up c12 %, Fraud growing 24% and Location up 7% which saw some high profile wins (Nike, Adidas, Wish.com) which will contribute to FY21. Our new forecasts are shown below. Overall, COVID-19 had a c1% impact on growth mostly felt in Asia Pac. Idology has proved a big success with trading ahead of initial expectations. Current trading. Trends are similar to those outlined at the April update with ‘at risk’ customer segments seeing a fall-off in volumes (eg leisure, retail, travel) which account for c25% of group sales. Financial services is still proving to be resilient (45% of group sales) but we expect this will start to weaken as recessionary forces take grip in local economies, leading to a softening in transactional volumes across a greater part of GBG’s customer base in FY21. Positives. COVID-19 has prompted more on-line transitions leading to higher volumes in some customers. Ultimately, this accelerated shift to digitisation globally bodes well for GBG’s long term growth and we see it emerging competitively stronger from this cycle, considering its diversified customer base and solutions are likely to drive a more consistent and broad recovery. Costs. GBG has taken discretionary cost action (pay / hiring freezes etc) which will lead to flat opex yoy after accounting for FY20 investments. Platform development of the three product pillars is crucially on-going, largely with incremental product improvements and sales force expansion paused. We forecast c11% sales decline and flat opex which we expect to refine ahead. View. GBG will trade through the cycle, but it could be a couple of years before historic profits levels are reached. Valuation could limit material upside for now but the long term growth opportunity remains. We retain Buy with a 800p TP.
GB Group’s (GBG’s) year-end trading update confirmed a strong performance in FY20, despite COVID-19 restrictions in Asia Pacific having a modest impact in Q4. Although the lockdown restrictions are boosting demand for online products and services, not all verticals are benefiting (eg travel, transport). We have revised our FY21 and FY22 forecasts to reflect lower levels of usage-based revenues and new business as well as reductions to operating costs. We estimate that the company has ample funds to manage through the disruption and in the longer-term should be a beneficiary of increasing amounts of business shifting online.
A strong FY20 Following the strong H120, momentum carried into H220, with FY20 revenue and EBITA seen as £199m and £47m, ahead of our £195m (cons £196.3m) and £44m (cons £44.6m). This was driven by a respectable 10.6% organic cc revenue growth, the full year contribution from M&A, and FX. Net debt was £35m with strong cash generation taking it below our £44m forecast. As with many other sector companies, despite a strong B/S, the dividend will not be paid as a cash preservation measure Outlook COVID-19 impacted GBG’s Asia Pac operations in Jan / Feb with March seeing a broader impact across the business. We expect GBG’s volume from Gaming, Retail, Leisure and Travel customers to have initially been most impacted, which accounts for c25% of group revenue. There will also be increased volumes in certain areas through more on-line activity driving verification and location volumes, but overall we anticipate a net reduction in volumes for the group. Financial Services is c45% of group revenues and, while this has been holding up well to date, we suspect over time GBG may see some volume reductions as their customers’ own business volumes reduce (less mortgages applications, account openings etc). Cost action GBG has implemented discretionary cost reductions such as pay and hiring freezes. Reduced travel and entertainment will naturally assist. While the group is continuing its product development initiatives around its three international pillars, new investment in sales, marketing and support resource around these initiatives will be postponed. This reduction in opex will be netted off against full year costs of FY20 hires, so we expect the overall FY21 opex base to be broadly flat on FY20. FY21E forecast ranges Simplistically assuming a 5-10% revenue reduction in FY21, this would imply a loss of c£10-20m revenue vs FY20, or c£7m-£15m of gross profit. Assuming a flat cost base, this would imply profits of c£32m-£40m (EPS c12-15p). We would expect scenarios of much steeper revenue declines could be partly countered by incremental cost saving measures. View With the outlook so variable, we place forecasts & TP under review until the June FY20 results. We expect a material FY22 snap back if economic activity improves, with GBG volume driven. B/S headroom (c£105m) and cash generation will enable GBG to successfully trade though the cycle, but the premium valuation may come under a little pressure unless the market looks through the near term to a FY22 snap back profit growth scenario.
Strong organic revenue growth in H120 was boosted by several multi-year fraud licences and the contribution from the VIX Verify and IDology acquisitions. During H1, GB Group (GBG) made good progress with its strategy to expand internationally and enhance its product functionality and datasets. Management is confident of meeting consensus expectations for FY20; while our forecasts are unchanged at the operating profit level, a higher effective tax rate reduces our normalised EPS forecasts by c 3% in FY20–22e.
Results. Revenue of £94.3m was up 62% reported and 17% organic, with strength across the board. Excluding the impact of favourable timing on some material Fraud deals, organic growth was c12-13%. Profits of £21.5m compares to the October trading statement estimate of £20.9m and was up 119% yoy driven by organic progress and acquisitions (Vix and Idology). Cash conversion of 104% meant debt continued to be paid down, with H120 net debt of £53.8m versus £66.2m at FY19. Highlights. International revenues are now 57% of the group, up from 35%, which marks a key milestone and ambition in the internationalisation of the business. This was driven by continued organic growth in EMEA, China & NA combined with the impact of the US IDology and Asia Pac Vix Verify businesses. We see the successful integration of both these businesses as a major positive, with both performing strongly post acquisition. GBG continues to expand its dataset reach (eg UK Educational Data, Indian Driving Licences and NavInfo Europe providing address data for mainland China). Investment. Top line traction gives good underpinning to FY20E supporting continued investment (micro service product platforms, enterprise sales force hires, product rationalisation, geographic expansion) in internationalising the business around its three core areas of Fraud, Verification and Location. Forecasts. Despite the strong H120, we leave our forecasts unchanged which implies a broadly flat EBITA H220E on H120 (£22.5m vs £21.5m) largely due to the cost build coming through as well as us remaining conservative on H220E revenue progression considering the variable macro backdrop. Investment view. The stock reached our previous target price following strength in the shares post the trading update. While we expect the shares to consolidate around current levels for now, forecast underpinning allows a long term valuation view and we up our PE based TP to 725p. Buy retained.
GB Group (GBG) expects to report strong revenue and profit growth for H120, with exceptional organic growth boosted by recent acquisitions. Constant currency organic growth of 18% is ahead of the company’s double-digit target, boosted to a large extent by the signing of contracts in the Fraud division that had been expected in H2. Management expects to meet FY20 consensus estimates, implying a stronger weighting to H1 revenues and profits than in previous years. We maintain our forecasts.
GB GROUP^ (GBG, NR, CNP) - Trading Update. Revenue up 64% (18% organic constant currency)... “pleased with progress”. | AVEVA^ (AVEVA, NR, CNP) - Trading Update - low double-digit revenue growth on a proforma constant currency basis in the first half. | IDEAGEN^ (IDEA, NR, NCP) - Board Change.
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GB Group’s Identity capital markets day was a deep dive into the group’s largest business (36% of FY19 revenues). With electronic identity verification (eIDV) a structural growth market, GBG has invested heavily in the business over the last four years, expanding geographically and adding new capabilities and data sets. We forecast the identity business to be the fastest growing division over the next three years, underpinning the group’s targeted double-digit organic revenue growth target.
Positive verification. We left the CMD upbeat regarding GBG’s industry position and growth prospects in a market expanding by c.9-15% pa. GBG has c.2,000 customers using its Identity Verification solutions and has access, through its partners, to data from >4bn citizens. The geographic and data type (static, behavioural, biometric) breadth is unmatched and, combined with its algorithms, enables better match rates (triangulation of data sources) vs competition, giving its customers more effective customer onboarding and regulatory compliance. Increasingly, its capabilities in Location and Fraud are becoming more relevant to the overall customer pitch, another differentiator vs point solution providers. Deal size uplift ahead. The majority of GBG’s verification volume uses mostly static data sources (bills, passports). However, increasingly GBG’s clients are being compelled to ensure more stringent methods are used to verify their end customers for reasons such as fraud or regulation. This should drive up GBG’s average customer spend as it charges for a broader range of verification techniques such as behavioural, biometric or location. This trend could also make re-authentication become more commonplace (continuation of verification post initial onboarding), which would also increase the overall customer wallet size. Idology. The event showed first-hand the success both parties are seeing from being a combined group. GBG has increased Idology’s range of data sources, is investing in sales and the platform, as well as integrating Loqate into Idology. Idology’s Fraud Consortium, where its technology alerts customers to potential fraudulent identities (98% accuracy rate) by spotting patterns across its verification transaction base, creates strong client retention and differentiation. Over time, we expect it to be more fully exploited across GBG where appropriate. View. The scope for growth (organic/M&A) is significant due to market demand, the platform and critical mass GBG has developed which drives our Buy rating.
GB Group (GBG) reported FY19 results in line with recently upgraded estimates. It continues to deliver on its strategy to grow organic revenues at double-digit rates while delivering operating margins in excess of 20%. Recent acquisitions are performing well and helped drive the 56% growth in international revenues over the year. We make minor changes to our forecasts, resulting in small upgrades to normalised EPS estimates.
GB Group expects to report FY19 revenues, adjusted operating profit and net debt ahead of consensus expectations. The recent acquisitions have integrated and performed well, providing much of the upside to forecasts. We have upgraded our FY19 earnings forecasts to reflect the better trading performance in H2 and lower net debt in FY20 and FY21.
GB Group (GBG) has acquired IDology, a US identity verification business, for an enterprise value of $300m/£231m. It has placed 39m shares at 410p per share to fund £160m of the purchase price, with the remainder coming from a new credit facility. We estimate that the deal offers significant cross-selling potential and will boost GBG’s international revenues to close to 50%.
GB Group’s Loqate division was the focus of yesterday’s capital markets day. Presenters highlighted the need for accurate address data as a prerequisite for many business processes, including e-commerce, insurance and invoicing. Loqate’s ability to provide the “golden record” in a simple, fast and consistent way gives it a competitive edge and supports the division’s international growth ambitions.
GB Group's H119 results confirm that it is on track to reach its targets for 10%+ organic growth and 20%+ operating margins. As previously flagged, H119 reported growth rates are skewed by the large perpetual licence signed a year ago; adjusting for this the group achieved 11% underlying organic growth and 8% adjusted operating profit growth. We maintain our revenue and profitability forecasts, with small adjustments to our net cash forecasts.
GB Group’s H119 update confirmed that the business is trading in line with expectations, with underlying organic revenue growth of 11% and underlying operating profit growth of 7% compared to H118. While our underlying forecasts are unchanged, we have upgraded our estimates to reflect the recent Vix Verify Global acquisition, which results in a 2.7% increase in our normalised FY20 EPS forecast.
GB Group has taken another step forward in its international expansion with the acquisition of Vix Verify Global, a business specialising in ID verification and location intelligence software in Australia and New Zealand. Complementing GBG’s IDV and Loqate solutions, the acquisition will widen the datasets available to both GBG and VVG customers. The deal cost of A$38.3m/c £21.2m is being funded from existing facilities. GBG expects the deal to be earnings accretive in the first 12 months once synergies are taken into account.
GBG delivered another excellent performance in FY18 with reported adjusted EPS up 37%. With over 75% of revenues now from the global product lines, a clear organic growth plan and a healthy acquisition pipeline, we retain our forecasts and believe the shares, which trade among identity access management and cyber security peers to be well supported at these levels.
GB Group (GBG) expects to report revenues and EBIT ahead of our forecasts on a strong performance from the fraud management and global electronic verification services. Net cash of £13.4m is also well ahead. This excellent momentum underpins our 12% organic revenue growth forecast in FY19, and the strong balance sheet provides additional support to the group’s buy-and-build strategy.
GB Group’s (GBG) outlook remains strong; the bulk of revenues are now from the faster-growth international service lines, investment in growth is increasing and we see its strength in dynamic ID verification (IDV) as increasingly relevant. We forecast 15% CAGR in EPS to 2020 and see scope for GBG’s active M&A strategy to act as a catalyst to further earnings and share price upside.
The year-on-year doubling of EBITA in H118 reflects continued strong underlying organic growth at GB Group (GBG), boosted by recent acquisitions and a perpetual licence deal. H2 has started well and forecasts, which are largely unchanged, appear comfortably underpinned. GBG’s consistent organic performance and increasing product innovation support its current rating, meanwhile its buy and build strategy could support further earnings-driven share price upside.
GB Group’s trading has remained robust in H1. Backing out a £3.5m perpetual licence, underlying organic growth was 12%, consistent with our FY estimates and last year. We leave our estimates unchanged, although the perpetual licence will mean that the year will be less significantly H2 weighted than usual. A strong recurring revenue profile (c 70% in FY17), robust organic growth prospects and an accretive acquisition strategy all justify a premium rating.
Following April’s trading update, GB Group’s (GBG) FY17 results held no major surprises, with the fraud, risk management and location services continuing to underpin strong growth. The incoming CEO plans to continue to execute the group’s internationalisation strategy and investment will be managed to maintain EBITA margins at c 20% over the medium term; while marginally lower than our FY19 assumption, we raise our EPS forecasts by c 4% in FY18 and c 2% in FY19 reflecting a lower expected tax rate.
The acquisition of PCA Predict is an excellent fit with GB Group’s (GBG) address intelligence services, adding SME reach and, combined with Matchcode360 and Loqate, providing GBG with the most complete offer in the industry. GBG has closed a £58m placing to fund the £66m acquisition (EV), which it will supplement with existing cash and debt. Despite the planned increase in investment to expand PCA outside the UK, the deal should be earnings enhancing and we upgrade our FY18 and FY19 EPS forecasts by 8.5% and 10.4%, respectively.
The acquisition of PCA Predict (formerly Postcode Anywhere) looks to be an excellent deal for GB Group. Earnings enhancing in the first year, the purchase adds greater international scale to GBG’s existing address-validation and data quality management operations; as well as bringing a large (9,000 users) complementary client base with an easily deployed SaaS solution and the opportunity to upsell GBG’s original products. The combined business is expected to offer the most complete global access to address intelligence. We lift our Target Price to 400p on the back of this acquisition.
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.
With 16% revenue growth and stable adjusted EBITA margins, GB Group’s H117 results were in line with guidance given at the October trading update. Acquisitions are performing well and like-for-like growth, 11%, is expected to accelerate further in the second half. We make no changes to our estimates and consider the shares, down 25% since the trading update, to be oversold.
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.
GB Group’s (GBG) proposed acquisition of IDscan positions it as the only proprietary provider of both document and biometric identity data intelligence capabilities, and is in line with its strategy to acquire technology that can be rolled out globally. The acquisition should be earnings accretive within the first year and we are therefore upgrading our forecasts. The post-deal P/E of 25.0x FY18e is the lowest one-year forward P/E seen in a year, offering a good entry point into the shares.
Revenue growth of 28% and favourable product mix effects offset the impact of additional sales and product investment; as announced in April, operating profits increased 24%. Trading remains strong and we forecast acceleration in organic revenue growth in FY17. We initiate FY19 forecasts, looking for double digit EPS growth to continue. GB Group (GBG) has an excellent track record of creating value through M&A. With net cash and strong cash conversion, this could be added to by probable acquisitions.
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.
GB Group (GBG) has an impressive track record in delivering on its strategy to build a leading global identity data intelligence firm. The integration of recent acquisitions, the ongoing international roll-out and the current product investment should continue to support double-digit revenue growth and a resumption of margin expansion from FY17. The 28x FY17e P/E rating, which acknowledges the positive outlook, is justified.
GB Group’s (GBG) H116 results show strong performance in line with the October trading update. Group revenue rose 39%, aided by organic growth of 18%, with contributions from both of the group’s business segments. Normalised operating profit was up 21% after investing c £1.3m in product and business development capabilities, and diluted EPS after our notional 21% tax charge increased 19%. Revenue from international clients continues to rise strongly, now accounting for 26% of the group’s business up from 21% in H115. The balance sheet remains solid with £1.2m net cash.
GB Group (GBG.L): Interims | Ariana Resources (AAU.L): Red Rabbit update
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GB Group: H1 on track for another year of growth (BUY) | Gooch & Housego^: Preliminary results (HOLD) | Petra Diamonds: Banking covenant tests waived (BUY)
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GB Group (GBG) is a world-leading provider of identity data solutions using its own proprietary software platforms either as SaaS or under licence. We initiate coverage on this high-quality small cap growth stock, which is admittedly well rated on current forecasts but which we feel is likely to outperform market expectations; it is highly cash generative and offers an attractive target for a range of much larger global operators in its marketplace. The group is well managed by an experienced and incentivised team and is displaying long-term double-digit organic growth in dependable and recurring revenue streams on the back of a range of powerful global drivers. This is augmented by regular, carefully targeted and integrated acquisitions from existing resources, which bring both new functionality and new regional markets. The business model demonstrates excellent margins, high cash conversion ratios and even a c.1% yield. The market and industry are still very early stage, with little direct competition, and there is plenty of room for growth without significant risk being undertaken, so investors can still feel comfortable with high ratings. We initiate with a 290p 12-month target price, implying 15% upside to the current price.
Warren Buffett once observed that “Risk comes from not knowing what you’re doing.” The inference being that “Risk” goes if you do know what you are doing; or if you hire at team who know what they are doing. GB Group (GBG) leads the way in managing risks for their customers. Risks that pretty much any modern business needs to manage when handling data and payments and all the identity validation and security issues that that entails.
