GB Group PLC (LON: GBG) 

GB Group PLC (LON: GBG) is an FTSE AIM UK 50 index listed Company supporting clients to validate and verify the identity & location of their customers. The Company's solutions help organizations to validate and verify the identity and location of their customers. Its segments include Location, Identity and Fraud.

On 30 November 2021, GBG will release H1 FY22 results.

Recent trend of dividend payments

GBG had paid a final dividend of 3.4 pence per share on 03 August 2021, while the ex-dividend date was 24 June 2021. Moreover, it became the thirteenth year of growth in dividends. 

Growth Prospects

• Positive Industry Dynamics: The changing consumer habits by shifting online resulted in an increased need for fraud prevention solutions. Furthermore, it will provide long-term structural growth opportunities for each of GBG's three business units of Location, Identity and Fraud.
• Increased Crypto-Related Transactions: The Company got benefited from the increased transaction volumes across crypto currencies shown during Q4 FY21. Moreover, the Company had carried the same positive momentum into FY22, with significant trading volumes experienced for April 2021 and May 2021.
• Increased Investment: The Company had raised investments in people, technology, and channel-to-market capacity to grab the maximum market opportunities.

Key Risks

• Federal Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets. Moreover, the Bank of England decided to keep interest rates unchanged in its latest meeting.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Macroeconomic Risk: The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of GB Group PLC.

Octopus Investments Limited is the most significant shareholder as it holds nearly 12.57 million shares as of 30 September 2021. 

H1 FY22 Trading Update (for six months ended 30 September 2021, as of 21 October 2021)

• Decent Top-Line Business: The top-line revenue had shown a decent growth of around 5.3% to £109 million. Moreover, all three business units grew in both reported and organic constant currency terms during H1 FY22.
• Adjusted Operating profit: GBG had shown around 3% improvement in the adjusted profit before tax to £27.5 million during H1 FY22, while the adjusted operating profit margin stood at approximately 25.2%.
• Balance Sheet: The Company had net cash and treasury deposits of £39.5 million as of 30 September 2021. Moreover, it also had an unutilised revolving credit facility of £110 million.
  

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 16 November 2021, at 08:07 AM GMT, GBG’s shares were trading at GBX 862.50, down by around 1.26% from the previous day closing price. Stock 52-week High and Low were 999.00 and GBX 780.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~41.34 approaches oversold territory.

Over the last two years, GBG’s stock price has delivered a positive return of ~30.82%, and the FTSE All-Share Software & Computer Services index (benchmark sector) delivered a return of around 36.17% and FTSE AIM UK 50 index (benchmark index) with a return of approximately 5.33%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had gained positive momentum during H1 FY22 with a decent top-line and bottom-line business growth. Moreover, GBG had shown accelerated progress regarding investment in market-leading technology and developing long-term customer relationships. With the transformation of the digital business, all three business segments, Identity, Location and Fraud, would be expected to grow in the medium term. GBG had witnessed accelerated recovery in the Fraud business division as it had secured license extensions from two large multinational financial services organisations. The Location business segment got benefitted from the continuing consumer shift to greater online activity. However, the stock price may undergo sizeable corrections amid rising inflationary pressure and increasing Covid-19 cases in Europe. In a nutshell, the Company remained well-positioned to generate long term shareholder returns by focusing more on changing market dynamics.

Considering the decent financial performance during H1 FY22, increase in net cash, increased cryptocurrency transaction volumes, resumption of dividend payments during FY21, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on GB Group PLC at the current price of GBX 862.50 (as on 16 November 2021 at 08:07 AM GMT), with lower-double digit upside potential based on 48.02x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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