GB Group, which makes fraud prevention software, promises to “help your business build online customer relationships based on trust”. Yet investors in the company, which carries out identity and location checks for online shopping and financial transactions, might be running out of faith.
The technology company’s stock has been mauled over the past 12 months. GB briefly attracted American bidders last year: private equity group GTCR expressed interest in a possible cash offer in September, before walking away a month later. That helped it trade above 600p last September, having been at 440p before the takeover talk ignited. Now the stock is changing hands at just 218p. Reasons for Aim-listed GB’s decline clearly go beyond the withdrawal of the takeover: rises in interest rates and a weaker pound hurt its finances, and growth has been disappointing.
GB rode the wave of the boom in interest in both cryptocurrency and online shopping during the pandemic, which led to more demand for its identity checks and fraud prevention software. But when interest waned, GB was hurt, too. It fell to a £118 million loss for the year to April from a £22 million profit a year earlier, mostly due to a huge write-down in the value of two acquisitions in the US. Partly in response to this, investors rejected a board pay deal earlier this year.
However, GB, which processes some 210 million transactions each day for customers including Volvo, Barclays, IBM, HSBC and Lego, is in a structural sweetspot. Demand for its services looks set to rise alongside the proliferation of sophisticated fraud.
Gross margin has remained a steady 71 per cent over the past two years, and Charles Brennan, analyst at Jefferies, concludes “that the slowdown in growth at GB is more cyclical than structural. For the patient, improving growth should be rewarded with a material re-rating.”
The stock is trading on a price to earnings ratio of 13, while its larger rival, Experian, changes hands at 23 times price to earnings.
GB has transformed since it launched in 1989 as a business that checked customers’ names and addresses for catalogue shopping companies, and its relevance now looks unparalleled.
There remains a chance of a takeover bid at GB from a different private equity firm or a software giant. “While the costs of financing have increased, PE firms are still active and have equity to deploy. There is nothing in the [GB] share price for this,” says Andrew Ripper, analyst at Liberum. Buy.
