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GB Group: good value for investors in competitive digital ID space?


The recent acquisition of ID provider, Acuant by fraud prevention company, GB Group (LON:GBG) is a shrewd move. Acuant’s Trusted Identity Platform which includes AI-powered identity verification, regulatory compliance (AML/KYC) and digital identity combined with GBG’s existing US-based services firm IDology should, says GBG, be a natural complement and bring around £265 million in revenue.

The deal which is worth $736m (£547m), is being paid for with £460m cash and £87m in equity: a combination of £155m partial drawdown against a new £175m revolving credit facility and a fundraising of £305m. The cash box placing which was 725p per share was at a 17% discount to the actual share price of 875p and although the share price bounced back to 756p soon after, at time of writing it is just under 700p and is down around 24% YTD.

Danni Hewson, financial analyst at AJ Bell told The Armchair Trader: “There’s quite a lot for investors to weigh up when it comes to GB Group. On the one hand snapping up Acuant is a very smart move and will help it expand in the lucrative US market. On the other it’s come at a steep price and has required the company to go cap in hand to investors, a move which has unsurprisingly seen the share price tumble.”

GBG-Acuant synergies

Hewson added that the sector as a whole has been a little depressed over the last week as investors weigh up which way central bankers will jump now Omicron has to be factored in and the dance between growth and value stocks is played out. GB Group believes the Acuant acquisition should accelerate its product, data and platform strategy by two years as well as enhance operating margins.

It will also enable GBG to focus on product rather than platform development: Acuant brings a market-ready SaaS version of GBG’s existing on-premise fraud prevention products and its document library also has far greater coverage in the US and other markets. Acuant will also accelerate GBG’s platform strategy with advanced customer interfaces, data capabilities and technology deployed via the cloud.

Financials – slow but steady

Total revenue for the period grew by 5.4% to £109.2 million or 12.6% on an organic constant currency basis. The growth was mainly underpinned by subscription and transactional/consumption revenues of £105 million.

While adjusted operating profits were up 3.5% to £27.8m, operating profit decreased by 5.2% to £14.8 million. This was mainly driven by an increase in the charge for equity-settled share-based payments as a result of a greater number of share options granted to team members and executive directors, and the resumption of spending on travel and marketing and the start of an increase in headcount.

The lower profit also takes into account £12.9 million of costs associated with the amortisation of acquired intangibles, share-based payments and exceptional items (2020: £11.2 million). Of these costs £12.8 million (2020: £11.0 million) were non-cash items and £0.3 million related to transaction costs associated with the acquisition of Acuant. As of 30 September 2021, GBG had £39.5 million of net cash.

Market opportunities

It’s also worth keeping in mind that this is a growth market, if not highly competitive. The surge in the number of fraudulent activities worldwide, along with the rising adoption of ID verification systems in banks and other financial institutions, will drive the growth of the market in the coming years. estimates that the ID verification market should reach $33 billion by the end of 2030, and North America is anticipated to register the largest revenue of about $12 billion.

Is it time to buy?

Despite the drop in share price, latest research by Edison Group estimates that GBG is trading at a premium to its identity management peers – Experian and Equifax – but at a discount to higher growth, lower profitability identity access management (IAM) and cybersecurity (CS) peers – Darktrace and Okta – and that in fact, Acuant will grow faster than GBG.

The drop in share price is certainly an opportunity to get in on the action at a more reasonable level and adds Hewson, “although growth hasn’t exactly been stellar which may give would-be investors pause, it has been steady.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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