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.
GBG now generates c 26% of sales from faster-growing international markets and over the last three years, revenues have almost doubled while earnings have tripled. The acquisitions of Loqate (April 2015) and DecTech (May 2014) added new technologies in global address verification, geo-coding and fraud management, expanded geographic reach in the US and Asia Pacific, brought strategic channel partner relationships and are feeding cross-selling opportunities elsewhere in the group.
Organic revenue growth has ticked up consistently over the last few years to 18% in H116. We expect this solid path to continue: the addition of new data sets, features and products is increasing GBG’s addressable market, making the products stickier, and should support cross-selling opportunities. In the current year, the integration of the loss-making Loqate acquisition (acquired in April 2015) and investment into its new service for the GOV.UK Verify platform are affecting the typical path of operating margin expansion that we have come to expect. However, Loqate should become profitable during FY17 and the Verify service launches in the coming weeks, consequently we expect the operating leverage to become evident once again from FY17. We introduce an FY18 forecast EPS of 10.3p, implying a three-year CAGR of 16% in adjusted EPS.
On an FY17e (March) P/E of 28.3x and EV/EBITDA of 19.2x, GBG trades at a considerable premium to its peers. The current investment phase accounts for part of this; however, the stronger organic growth and strategic expansion of international services are also being acknowledged by investors. Based on the group’s current momentum, management’s track record in creating value from acquisitions and the group’s own strategic value in a consolidating market, we believe the premium is justified.