GB Group Plc (GBG) is a Chester, United Kingdom-headquartered company, specialising in identity data intelligence. The company engages in validating and verifying the identity and location of customers to help organisations make decisions about the customers they serve and the people they employ. The company serves its clients with the assistance of products which are built upon data obtained from over 200 global partners across 79 countries. The company's operations are differentiated in two segments: Fraud, Risk & Compliance and Customer & Location Intelligence. The company’s software solutions are based on facial recognition, machine learning and other cutting-edge technologies. The company has a global client base which includes US-based e-commerce giants, Europe based household brandsand Asia’s Top banks. The company presently operates globally through its offices in 16 countries with an employee base of over 1,000 professionals. The company’s clients include companies like Asos, Stripe, BNP Paribas, Revolut, William Hill, Nordstrom, Airbnb, HSBC, TransferWise, Tabcorp, IBM, Graze, Bloom & Wild, Nike, Harrods, Bentley, PayPal, Payleven, Fujitsu, Virgin Money, Tesco, De Montfort University Leicester and Waitrose.

The current Chairman is David Anthony Rasche and he was appointed to the board in September 2010. Chris Clark holds the responsibilities of the Chief Executive Officer and joined the group in 2017. David John Wilson holds the responsibilities of Chief Operating Officer and Chief Financial officer.

Key Statistics



Top Shareholders 

 
Segments

The company’s operations are divided into two reportable segments being Fraud, Risk & Compliance and Customer & Location Intelligence. The company’s Fraud, Risk & Compliance segment takes care of all the activities related to ID Compliance, and Fraud Solutions, ID Verification, ID Employ & Comply and ID Trace & Investigate. The company recently acquired IDology Inc, and VIX Verify Global Pty Ltd which are part of Fraud, Risk & Compliance segment. The Customer & Location Intelligence segment takes care of all the activities related to ID Engage solutions and ID Location Intelligence. In the financial year 2019, the company’s revenue, adjusted operating profit and reported operating profit from all the segments have increased as against last year data which include Fraud, Risk & Compliance and Customer & Location Intelligence. The company also disclosed its revenue and Non-current assets based on geographical areas in which it operates, which include the United Kingdom, the United States of America, Australia and Others. In the financial year 2019, the revenue from all the geographic segments has increased as against the last year data. The non-Current assets have increased from the United States and Australia business for the current period.

Financial Highlights – Financial Year 2019 (31^st March 2019, £, Million)


(Source: Annual Report, Company Website)

For the financial year ending 31^st March 2019, driven by growth in the international business and solid performance in the Asia Pacific and North America, the company’s revenue surged by 19.9 per cent to £143.50 million from £119.7 million in FY2018. In FY2019, the company’s gross profit stood at £107.44 million as against £92.61 million in FY2018. The company’s adjusted operating profit grew by 21.7 per cent to £32 million in the FY2019 against £26.3 million in FY2018. The Operating profit stood £15.42 million in the Financial Year 2019 against £13.9 million in FY2018. For the FY2019, the company’s PBT (Profit before taxation) rose by 10 per cent to £14.7 million versus £13.4 million in FY2018. The Profit for the year (attributable to the shareholders) stood £12.15 million in the Financial Year 2019 against £10.65 million in the Financial Year 2018. The company’s adjusted basic earnings per share stood at 18.2 pence in FY2019 versus adjusted basic earnings per share of 15.3 pence in FY2018. The company’s basic earnings per share stood at 7.7 pence in FY2019 versus basic earnings per share of 7.1 pence in FY2018. The company’s adjusted diluted earnings per share stood at 17.9 pence in FY2019 versus adjusted diluted earnings per share of 15 pence in FY2018. The company’s diluted earnings per share stood at 7.6 pence in FY2019 versus diluted earnings per share of 7 pence in FY2018. The final dividend per share rose by 12.8 per cent to 2.99 pence in FY2019 from 2.65 pence in the financial year 2018. The net asset increased by 103.8 per cent to £321.5 million in FY2019 from £157.8million in FY2018.

Key Performance Indicators

Adjusted operating profit
Adjusted operating profit is the earnings before income tax, excluding expenses related to asset impairment costs and restructuring charges. It gives investors additional information about current business trends. In FY2019, the company’s adjusted operating profit was at £32,031 thousand versus £26,311 thousand in FY2018.

Adjusted EBITDA
Adjusted EBITDA is used to compare and assess related companies for valuation and other purposes. In FY2019, the company’s adjusted EBITDA was at £34,080 thousand versus £28,688 thousand in FY2018.
International Revenue (% of Total Revenue)

The international revenue is the revenue generated by the company from its overseas operations for a particular period. In FY2019, the GB group’s international revenue increased to 44.7 per cent from 34.4 per cent in the financial year 2018.

Financial Ratios 

 

The reported gross margin in FY2019 declined by 2.5 per cent to 74.9 per cent against 77.4 per cent reported last year for the same period. The reported EBITDA margin of 22.2 per cent for the FY2019 stood lower than the industry median of 28.2 per cent. The reported operating margin in FY2019 declined by 0.9 per cent to 10.7 per cent from 11.6 per cent reported last year for the same period. The reported Pretax margin of 10.3 per cent for the FY2019 stood lower than the industry median of 13.8 per cent. Net margin reported was 8.5 per cent for the financial year 2019, reflecting a decrease of 0.4 per cent when comparedwith last year data for the same period. Return on equity for the Financial year 2019 stood at 5.1 per cent, which was lower than the industry median of 15 per cent. On the liquidity front, GB Group Plc’s current ratio was lower than the industry median of 1.27, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the GB Group Plc stood at 0.27x and remained the same as compared to the industry median.

Share Price Performance


Daily Chart as at Oct-8-19, before the market close (Source: Thomson Reuters)

On October 8, 2019, at the time of writing (before the market close, at 10:31 AM GMT), GB Group Plc shares were trading at GBX 551.00, up by 1.1 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 638.00/GBX 407.50. Stock’s average traded volume for 5 days was 280,128.00; 30 days – 239,234.97 and 90 days – 343,493.97. The traded volume (average) for 5 days was up by 17.09 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly higher volatility as against the benchmark index based on the company’s beta of 1.29. The outstanding market capitalisation was around £1.06 billion, with a dividend yield of 0.55 per cent.

Valuation Methodology

Method 1: Price to Earnings Approach (NTM)
 


To compare GB Group Plc withits peers, Price/Earnings multiple has been used. The peers are RIB Software SE(NTM Price/Earnings was 40.07), Aptitude Software Group Plc(NTM Price/Earnings was 36.62), Eskar SA(NTM Price/Earnings was 34.94), Innofactor Plc(NTM Price/Earnings was 34.73) and ESI Group SA(NTM Price/Earnings was 33.14). The average of Price/Earnings (NTM) of the company’s peers was 36.00x (approx.)

Method 2: Price to Cash Flow Approach (NTM)



To compare GB GroupPlc withits peers, Price/Cash Flow multiple has been used. The peers are Kainos Group Plc(NTM Price/Cash Flow was 67.65), SDL Plc(NTM Price/Cash Flow was 44.23), StatPro Group Plc(NTM Price/Cash Flow was 29.42), Softcat Plc(NTM Price/Cash Flow was 27.36) and NCC Group Plc(NTM Price/Cash Flow was 16.29). The Average of Price/Cash Flow (NTM) of the company’s peers was 37.00x (approx.)

Risk Assessment and Growth Drivers

The company operates inmultiple geographies and its profits can be impacted negatively due to foreign exchange rate fluctuations. Being an IT company, the GBG needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. However, the company operates in a competitive market, which may lead to pressures on pricing. New regulations, like GDPR, constraints the company's ability to collect new data. The company has launched Loqate, a brand to provide all location-based solutions to enhance the customer proposition. The company is also shifting to a cloud operational model as it will help the company with faster growth in some of the key markets that require evolving security requirements.

Conclusion

The company has shown good financial performance for the financial year 2019. Driven by good growth from all the businesses in which the company operates, the company’s revenue and the profitability have improved for the current period. The company made good progress and is looking for further growth, both organically and through strategic acquisitions.

Going forward, due to several big customers wins, the company expects positive momentum and expects to see growth in both revenue and profit in the coming years.The company also have many projects under pipeline, which will help the company to achieve strong organic growth. The company is actively looking forward to acquisition opportunities with good funding capacity.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £57.3 million in FY15 to £143.5 million in FY2019. Compound annual growth rate (CAGR) stood at 25.8 per cent.
 
Based on decent fundamental prospects and support from valuation done using the above two methods, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 545.00 (as on 7th October 2019) with high single-digit upside potential based on 36.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 37.00x NTM Price/Cash flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 8^th October 2019).

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