GB Group Interim Results: Strong Growth Boosted By Deals
Edison | Nov 27, 2012 12:04AM ET
GB Group’s (GBG.L) FY13 interim results show good progress, benefitting from organic growth, economies of scale and the acquisitions made in FY12. H113 revenues rose 44% to £17.7m and normalised operating profit was up 57% to £1.5m, £0.1m ahead of the level suggested in GB’s October trading update statement. Both divisions performed well and contributed to this growth. Management is expecting a stronger second half, which adds comfort for our full-year estimate. Earlier this month, the group acquired tmg.tv (TMG), a UK-based CRB-checking company, for maximum £3m cash. The deal is expected to be accretive in year one, and we are raising our FY14 EPS estimate to 5.8p up 0.3p to reflect this. The balance sheet remains robust and the group is well positioned to pursue organic and further acquisitive growth.
FY13 interims: Strong growth
As foreshadowed in management’s trading update at the end of October, H113 results showed strong growth. Both the group’s divisions, DataAuthentication (DA) and DataSolutions (DS), performed well. DA increased revenues by 26% (primarily organic growth). DS revenues rose 60% (organic growth and acquisitions). Divisional operating margins (pre-amortisation) in DA rose to 10.1% from 8.6%, but declined in DS to 10.5% from 11.5% due to change in operating mix.
Broadening CRB offering via accretive TMG acquisition
On 5 November, GB announced the acquisition of UK-based tmg.tv (TMG) for an initial £2.25m cash payment, plus a maximum £0.75m earn-out consideration. TMG is the UK’s second largest Criminal Records Bureau (CRB) umbrella organisation, completing over 0.17m checks pa, and will broaden GB’s CRB client base. Management expects this acquisition to be earnings enhancing in its first year of ownership and will sit in the DA division. In the year to June 2012, TMG achieved £1.8m revenue and £0.5m operating profit. We are raising our estimates to include TMG, most notably a 0.3p increase in normalised EPS to 5.8p for FY14.
Valuation: We expect strong growth to continue
GB’s normalised EPS trend (historic and estimated) shows strong growth as the group expands its capabilities and gains economies of scale. While the current share rating remains somewhat higher than our selected proxy comparators (see Exhibit 3), we believe this valuation is supported by GB being well placed to grow both its operating divisions strongly in the medium term (both organically and by acquisition) and ahead of the comparator average.
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