GB Group (GBG)

If you like the look of FTSE 100 data giant Experian then it may be worth looking in a similar sector at the AIM growth company, GB Group. Due to less coverage on the index, there is potential for the stock to achieve relatively higher levels of growth and hence deliver greater returns over the medium to longer-term for investors.

WHAT THEY DO

GB Group is an identity management company, with a market cap of £1.13 billion and is listed on the software and services sector of the FTSE AIM All-Share index. The company centers on the analysis of data in a variety of services such as user identification, customer on-boarding, and employee screening.

GB Group has performed well for investors in the past, achieving a 120% return for investors since 2016. In this blog, I explore why I think the business is positioned to continue to provide superior returns in the long run.

BIG DATA

I recently spoke about the growing importance of big data in today’s society, with the world becoming increasingly reliant on technology. Consequently, the amount of information technology is producing is also increasing and hence, the amount of data available to businesses. This is creating opportunities for companies to take advantage of.

As previously mentioned in my recent blog, big data market revenues in the software and services sector are projected to rise from $42 billion in 2018 to $103 billion by 2027. GB Group is therefore well-positioned to take advantage of this through its expertise in data analysis.

VALUATION METRICS

GB Group has strong valuation metrics, which provide good indicators of a robust business. The company has steadily increased operating cash flow over the previous years producing £25 million in 2018.

Additionally, it has produced a staggering 86% return on capital employed, which is extremely impressive. This highlights that the firm is very productive in using capital in the pursuit of growth and producing high profits, which is expected as technological services can easily be scaled. This is because costs remain low due to relatively high levels of fixed costs and hence the firm can benefit from economies of scale.

GDPR

In my previous blog, I also explained how GDPR and the increased rules around data protection could prove problematic for GB Group if a breach was to happen, but it could actually prove very beneficial also.

As data protection becomes increasingly important, it builds pressure on firms to have appropriate measures and systems in place to ensure data protection. As such, many firms will look to outsource this to companies that are specialists in the field. This is because if something goes wrong, internal members can show the process of outsourcing procedures that covers them and instead puts the onus on the outsourced firm, like GB Group, to have systems in place to protect data.

Though this could be problematic it does provide a good source of growth for the company going forward. This, along with the ever-growing reliance in society on technology which is resulting in large amounts of big data, sets GB Group in good shape to benefit in the future.

Additionally, the robust valuation metrics of the business highlights that the company is already heading in the right direction which also implies that good management and business operations are in place. As a result, I expect to see them to continue to grow and provide strong returns for investors.