GRC International Group PLC (LON: GRC)

GRC International Group PLC is an FTSE AIM All-Share index listed UK-based holding company engaged in providing services related to information technology governance, risk management and compliance solutions. The Company provides a range of services and products in three divisions: E-Commerce, SaaS, and Professional Services.

GRC will release H1 FY22 results in December 2021.

(Source: Company Presentation)

Technological Initiatives 

GRC is putting investments in “Learn from Anywhere” and COVID 19 secure training centre. Moreover, the Company aimed to improve automation, SaaS & Training offerings, and operational infrastructure over the medium term. Meanwhile, GRC had rebuilt GDPR.co.uk into a common group platform. The automation process is still underway.

Growth Prospects (also covers H1 FY22 Trading Update released on 02 November 2021)

• Robust H1 FY22 Performance: The billings went up by around 26% during H1 FY22 when compared with the prior-year levels despite the adverse impact of COVID-19, rising energy prices, inflationary pressures, and staff shortages. Meanwhile, the Company had also reported a maiden positive EBITDA for the six months period.
• Strong Recurring Revenue: The recurring revenue accounted for around 55% of total billings in the period. Furthermore, GRC has cumulative 4,720 subscribers to recurring revenue lines of Business in Vigilant Software, GRC e-Learning, IASME Cyber Essentials, ITGP Toolkits, and GRCI Law, with a combined rolling annual churn rate of only 4%.
• Recent Acquisition: The Company had successfully integrated Data Quality Management Group into the Group on an operational level. has proved successful.
• Favourable Industry Dynamics: According to the recent report by the leading industry expert, the global cyber security market is forecasted to reach USD 243.6 billion by 2025, equivalent to a CAGR of 11.7% between 2020 and 2025. Moreover, Cyber security Ventures predicted cybercrime would cost businesses globally more than USD 5.2 trillion over the next five years.

Key Risks

• Declining Trend: The Company’s revenue and annual billings demonstrated a significant reduction during FY21 when compared with the FY20 levels.
• Lack of Relevant Technological Advancement: The Company’s top-line business and bottom-line business would be adversely impacted in case GRC lacked innovation in developing new products.
• 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.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
  

Now we will analyze some key fundamental and shareholders statistics of GRC International Group PLC.

Calder (Alan Philip) is the most significant shareholder as it holds nearly 26.29 million shares as of 30 September 2021. 

FY21 Financial and Operational Highlights (for twelve months ended 31 March 2021 as of 7 September 2021)

(Source: Company Presentation)

• Low Revenue: The adverse impact of the Covid-19 pandemic had brought revenue lower by around 16% from £14.1 million during FY20 to £11.8 million for FY21.
• Decent Profitability: The pre-tax loss got narrowed down from negative £3.7 million for FY20 to a negative £2.8 million for FY21. Furthermore, the Company had shown a significant reduction of around 21% in overhead expenses to £8.9 million during FY21.
• Improvement in Cyber Security Billings: The cybersecurity billings went up by around 25% during H2 FY21 when compared with the H1 FY21. Moreover, the recurring revenues grew by almost 20% during H2 FY21.
• Decent Cash Position: GRC had reported net cash of £0.2 million as of 31 March 2021.

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 19 November 2021, at 8:00 AM GMT, GRC’s shares remained flat as against the previous day closing price at GBX 31.00. GRC’s 52-week High and Low were GBX 47.00 and GBX 16.50, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~15.19 approaches oversold territory, supporting an upside potential in the stock price.

GRC’s stock has delivered a decent positive return of ~48.94% in the last one year. Also, it has outperformed the FTSE All-share Software & Computer Services Index with a return of 23.15% and the FTSE AIM All-Share index with a return of around 22.46%.

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

Business Outlook

The Company had replicated the decent business performance of FY21 into FY22 as well, with a robust increase in recurring billings during H1 FY22. Moreover, the EBITDA remained positive for each of the three months during Q1 FY22.  Meanwhile, GRC got successfully adapted to the changing market dynamics and switched towards a remote and online delivery model for all Group products and services. The Company had also made significant progress on productivity and efficiency, with revenue per employee improving through the year.

Considering the penny nature of the stock, GRC may undergo sizable correction amid rising bond yields and expected tapering by the end of November 2021. In a nutshell, GRC remained confident about the outlook for H2 FY22 and beyond. Thus, it would depend on the risk appetite of the investors to take a reasonable position on this company having strong industry dynamics.

Considering the solid increase in billings during H1 FY22, several key technological developments, favourable industry dynamics, decent leverage position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on GRC International Group PLC at the current market price of GBX 31.00 (as on 19 November 2021 at 8:00 AM GMT), with lower-double digit upside potential based on 3.62x Price/NTM Sales per share (approx.) on FY22E sales 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.

*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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