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GBG gambles on major US presence

GB Group goes on the acquisition trail to boost its presence in the US
GBG gambles on major US presence
  • Sell-off hits all cyber security companies
  • GB looks to the US for strategic growth

Technology companies associated in a discernible way with cyber and identity security have caught the headlines in recent months. GB Group (GBG) specialises in providing software for the online identity checking services used by fintechs and banks. The half-year results came in flat, but the company, which has been highly acquisitive, added another company to its stable with the post-period acquisition of Acuant for $736m (£547m).

Buying Acuant goes some way to increasing the company’s presence in the North American market, which accounts for 40 per cent of the global demand for security checking. GB operates a subscription-based model, with this generating £47.9m of revenue during the half. Over 58 per cent of total revenues are generated by the identity division, which despite a difficult comparative period because of US government stimulus efforts in 2020, and resulting higher demand for security services, showed constant currency increase in sales of 10.4 per cent for the half.

Negative commentary around the likes of Darktrace, which is a provider of software for GB Group, has caused a general sell-off for cyber-security and fraud prevention companies – primarily over worries that the technology is too easy for new entrants to emulate. While we take a broadly agnostic view of GB’s prospects, the business model is heavily reliant on acquisitions to drive top-line growth – which is why the high price for the Acuant acquisition, combined with the lack of an immediate earnings boost, left the market unmoved. Broker Investec forecasts a price/earnings ratio of 42 for 2022, falling to 37 in 2023, which unless there is a major change in sentiment suggests the shares are range bound for now. Hold.

Last IC View: Hold, 895p, 08 Dec 2020

GB GROUP (GBG)   
ORD PRICE:787pMARKET VALUE:£2bn
TOUCH:786-789p12-MONTH HIGH:999pLOW: 716p
DIVIDEND YIELD:0.4%PE RATIO:59
NET ASSET VALUE:151p*NET CASH:£34.5m
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202010414.96.103.0
202110914.45.70nil
% change+5-3-7-
Ex-div:-   
Payment:-   
*Includes intangible assets of £373m, or 149p a share