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 13 June 2022, GBG will announce its 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

• Changing Consumer Habits: The changing consumer habits by shifting online resulted in an increased need for fraud prevention solutions.
• Global Leader in Identity Market: The acquisition of Acuant had strengthened GBG’s presence in North America and resulted in strategic benefits. Moreover, the integration of Acuant had produced a strong pipeline of cross-selling opportunities.

Key Risks 

• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Decline in Profitability: In H1 FY22, GBG reported a slight decline in profit before tax, while there is a persistent risk related to Covid-19 resurgence, increased competition, loss of data systems, supply chain snags, and scalability challenges.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of GB Group PLC.

Octopus Investments Limited is the most significant shareholder as it holds nearly 13.08 million shares.

Pre-Close Trading Statement (for the year to 31 March 2022, as of 21 April 2022)

• Solid Cash Generation: GBG’s cash generation continued to be robust that helped in reducing net debt and finance the acquisition of Acuant. As of 31 March 2022, GBG's net debt was £107 million.
• Solid Margins: For FY22, GBG expects to deliver an adjusted operating profit of at least £58 million, implying the adjusted operating profit margin at the upper end of expectations of around 24%.

Financial Highlights (for the six months ended 30 September 2021, as on 30 November 2021)

(Source: Company Website)

• Solid First Half: GBG reported revenue growth of approximately 5.4% in H1 FY22.
• Adjusted Operating Profit: GBG had shown around 3.5% year-on-year growth in adjusted operating profits for H1 FY22.
• Liquidity: At the end of H1 FY22, the Group reported a strong balance sheet with £39.5 million of net cash. 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 31 May 2022 at 08:03 AM GMT+1, GBG’s shares were trading at GBX 551.00, down by around 2.04% from the previous day closing price. Stock 52-week High and Low were GBX 980.00 and GBX 498.80, respectively.

On a daily chart, the stock price is hovering above the 20-days exponential moving average of GBX 545.69. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line has given the bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative) 

Business Outlook

GBG had gained a positive momentum during FY22 with a solid top-line business growth. The Company has clear growth opportunities, influenced by powerful structural drivers such as the growing risk of digital fraud, accelerating adoption of digital commerce, and increased compliance and regulatory demands. Furthermore, GBG had managed to depict solid trading performance across all its reporting segments, and FY22 revenue and adjusted operating profit surpassed the market expectations. In a nutshell, GBG remained optimistic regarding a solid business performance in FY23, driven by the strong underlying demand in the Identity division, continued solid momentum in the Location division, and recovery in the Fraud division.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the robust FY21 financial performance, strong guidance, decent dividend growth, 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 market price of GBX 551.00 (as of 31 May 2022 at 08:03 AM GMT+1), with lower-double digit upside potential based on 30.50x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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