Is it real, or a scam? That is the dilemma we all increasingly face over texts, emails and phone calls — and it goes many times over for even the smallest business. Ever-smarter technology gives crooks multiple opportunities for fraud and deception, from cryptocurrency to impersonation, spawning an industry dedicated to thwarting them.
That has been GB Group’s mission, beginning in northwest England 32 years ago, checking names and addresses for direct mail firms. As ID theft has become the biggest and easiest type of fraud, it has seeped into all fraud prevention. GB’s 21,000 customers include Google, Barclays, Ford, IBM, eBay and Sainsbury’s in 79 countries, making it one of the top six providers globally.
On Monday investors turned to GB’s shares after confirmation of the takeover of the United States-based Acuant for about £550 million in cash and shares, and their rise to a close of 780p was welcome after a choppy year. Yesterday’s announcement of half-year results was arguably the less significant event, but it was encouraging nonetheless (even if it was accompanied by a 10p slip in the share price). For the six months to the end of September, pre-tax profit was £14.4 million, £500,000 lower than the same time last year. Operating profit was up 3.5 per cent at £27.8 million. Revenue rose from £103.5 million to £109.2 million. Peel Hunt, GB’s broker, stripped out one-off factors to argue that the half-year numbers represented underlying 17.6 per cent growth.
GB has three main divisions. In the first half-year, Identity gained from strong underlying demand, higher volumes from cryptocurrency-related transactions than had been expected and ensuring that the $2.3 trillion distribution of US government stimulus cheques went to the right people. In the Location division, customers such as Nestlé UK bought into GB services to give them a smoother transition to digital commerce. And the Fraud side was helped by lifting Covid restrictions, enabling the return of equipment installations in premises.
Acuant, an ID specialist, looks as if it will make a significant impact. Chris Clark, GB’s chief executive, believes that it will accelerate the group’s development by approximately two years, enabling faster global expansion. There is only about a 10 per cent customer overlap between GB and Acuant, giving scope for cross-selling.
“Given the scale of opportunity ahead of us,” Clark said, “we will step up investment. Combined with an increase in travel and marketing spending following a period of Covid 19-enforced limitations, the outlook for the second half of fiscal 2022 remains in line with the board’s expectations for the enlarged business.”
GB has grown largely by acquisition, buying fourteen companies in the past ten years, and Clark is confident that there is plenty more to go for, especially outside Britain and the United States. The company’s shares are widely held by investment funds, led by Octopus, with 11 per cent. That is a comfort to individual shareholders, but not necessarily for the board since professional investors can be cold-blooded about selling to a predator. Clark, an old BT hand, was recruited four years ago to take GB to the next stage. It is possible that IBM or Microsoft, the giant technology groups, or whoever ends up owning BT might see GB as a tasty add-on.
Thanks to higher costs, Investec predicts normalised pre-tax profit falling from £56.7 million to £52.3 million in the year to next March, followed by £69.1 million and £79.7 million. That is without taking account of the almost inevitable takeovers that lie down the road. On that basis, the prospective price-earnings ratio could be 40.2 this year, falling to 31.7 for fiscal 2024.
ADVICE Buy
WHY Consolidation of the anti-fraud industry has further to go, and GB Group should do well out of that
National Express
Investors have blown hot and cold on National Express in the two months since the company said that it wanted to take over Stagecoach, its fellow bus operator. That says less about the merits of the deal, which may involve jettisoning the nationwide Megabus operation, than the two-way flow of betting about whether it will actually happen.
The Takeover Panel has given the companies until December 14 to bid or back out. Due diligence is said to be advanced and talks continue, but the Competition and Markets Authority has yet to pitch in.
While National Express shares have fluctuated, the Stagecoach saga has put something of a floor under the price, which had been drifting steadily downwards from a 2021 peak of 328p in April to 217p.
While the company has significant bus routes in Britain, mainly in the Midlands, its focus in recent years has been on America, Morocco and Spain, the latter being the home of the biggest shareholders, the Cosmen family, with 11 per cent. While UK and US bus passengers have largely stayed home, they have been reboarding in Spain and Morocco. Like other travel businesses, National Express is in limbo until scientists decide the gravity or otherwise of the Omicron variant. That may emerge before December 14, although the government’s temporary restrictions are not due to be lifted or strengthened until a few days later.
In the first half of this year, the group’s underlying operating profit was £22.9 million, transformed from a comparable £30.6 million loss in 2020. That was largely helped by £100 million in cost savings, however, which are not repeatable on the same scale in the long term.
Governments in Britain, America and Spain may inject cash, in the public interest. The Stagecoach merger would yield further scope for eliminating overheads, limited by there being little overlap between the two companies’ territories.
National Express shares therefore are a bet on the pandemic’s impact and the company’s ability to make money from restructuring the bus sector accordingly. Jeffries, the broker, says the shares are trading at seven times likely 2023 earnings.
ADVICE Hold
WHY Risks are too high until the Stagecoach and Omicron uncertainties disappear
