ID verification group enjoys strong half year trading period

Chris Clark

GB Group, the Chester-based ID verification experts, achieved strong first half figures, it revealed with its results announcement today.

Revenues in the six months to September 30, rose from £94.338m last year to £103.545m this time. Pre-tax profits improved from £8.486m in 2019, to £14.860m this year.

An interim dividend has been introduced, at 3p per share.

Chief executive, Chris Clark, said: “Our positive performance in the first six months is testament to the hardworking team at GBG.

“I am immensely proud of our dedicated team members who have adapted well to new conditions while continuing to support our customers in the opportunities and challenges they face.

“We have delivered good results driven by accelerated growth from some of our existing customers as they extend their use of digital services and, encouragingly, customer contract renewal rates continue to be in line with prior years.

“Although we saw the rate of new contracts slowdown in some geographies and sectors, we successfully won new business against our competitors throughout H1.”

He added: “By managing spend and cash during the period and through our highly cash-generative business model, GBG’s net debt position has improved by over £32m since the start of the financial year. This is a strong endorsement of GBG’s business model.

“Clearly, the broader implications of COVID-19 mean that uncertainty continues to be a dominant trend for all businesses around the world.

“However, GBG is well positioned as digital acceleration is now even more a necessity for all companies.

“For the consumer-facing businesses we serve, key to their success will be making sure they know who and where their customers are.

“We will continue to invest organically and through acquisition for additional capabilities to meet these needs and drive long-term growth for GBG.”

The group reiterates its guidance for the full year, anticipating revenue to be marginally ahead of last year on an underlying basis

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “October’s trading update had already hinted that these interim figures from cybersecurity specialist GB Group would be strong and they have not disappointed.

“The company is well placed in what remains a rapidly-growing industry as identity and location detection and fraud protection become ever more important as more and more of the world’s commercial and financial transactions take place online.

“First-half sales rose by 10% on a headline basis and the underlying rate of progress was slightly faster than that, once currency movements were taken into account.

“To increase sales at all in the current environment is hard enough, so this substantial step upward confirms the value that GB’s products and services bring to the Chester-headquartered company’s customers worldwide.

“That first-half increase in the top line continues a streak of double digit percentage growth in sales, on an underlying basis, that dates back to 2014.

“Cash flow remains robust and net debt has rattled lower by some £32m since the end of the last financial year.

“That is helping GB Group get back on the dividend list and the decision by chief executive Chris Clark and the board to sanction a 3p per share interim dividend speaks highly of confidence in future trading.

“The £1.8bn cap company has not previously offered a first half distribution, only a final one and in the fiscal year to March 2020 it passed on the year end payment, too, so the return to the dividend list looks like a further positive sign.”

Russ Mould

He added: “However, investors must resist the temptation to get too carried away. A big, one-off contract in the USA helped first-half performance and it will not be much of a factor in the second six months of the financial year to March 2021, so underlying revenues are expected to increase only marginally for the full-year, ending that streak of double digit percentage rates of progress.

“Analysts are still pencilling in a small dip in underlying operating profits for the full year, despite a 25% surge in the first half.

“That is still eminently forgivable in a world where corporations continue to husband their resources and manage their cash very carefully, although GB Group will need to pick up the pace at some stage or otherwise the very lofty valuation could start to weigh on the share price.

“Contrarians and value-hunters alike will balk when confronted by a forward price earnings (PE) ratio that exceeds 50.

“But if GB Group keeps developing at its usual pace then that prospective multiple will fall quickly and look far less intimidating, especially as the company has frequently demonstrated its knack of supplementing rapid organic growth with shrewd acquisitions.”