GB Group (LSE: GBG) shares climbed 18% Thursday morning, on the back of an update ahead of results for the six months ending 30 September.
The firm, which bills itself as a “global identity data intelligence specialist,” has seen its shares quadruple in price over five years, though the past 12 months have seen a relative flattening off, albeit a somewhat volatile one.
The company expects total revenue for the period to have risen by an impressive 64% to £93.7m, though that does include new acquisitions in the form of Vix Verify and IDology, with organic revenues said to be up 18%.
Profit rise
The firm expects to report adjusted operating profit of around £20.9m, up 138% on the same period last year, but how do we relate these figures to the share price valuation? In a year of growth through acquisition, I don’t think it’s easy.
Analysts are predicting a largely flat year for earnings per share, which would put the shares on a forward price-to-earnings ratio of approximately 34, or around twice the index average. There are dividends with a low yield of 0.6%, but they are progressive and are expected to have risen by 80% in five years this year.
A major effect of the year’s acquisitions is a lurch from net cash of £18.6m a year ago to net debt of £53.8m. But while that looks high, it would only be around 1.3 times annualised operating profit, so not too much of a worry.
GB probably does have a strong long-term future, but the combination of acquisition-led growth, debt, and a high P/E multiple means I’ll sit this one out and just watch.
Bigger dividend
Meanwhile, over at CareTech Holding (LSE: CTH), we’re seeing more modest growth expectations, but at a significantly lower valuation with shares on a P/E of 11, which would drop to around nine on 2020 forecasts. Dividend yields are higher too, at a little over 3%, and three times covered by earnings.
Thursday’s full-year trading update from the social care and education services provider told us that performance has been in line with market expectations. The year was pretty much dominated by the acquisition of Cambian, focused on the children’s services segment, which has come close to doubling the company’s occupancy capacity.
Net debt is a key figure here too, and at 30 September it stood at £293m, up from £147m a year previously, reflecting in part the cash consideration needed for the Cambian acquisition.
Debt
While the firm has a modest loan to book value of 40% (with a property portfolio valued at around £774m), its expected net debt to proforma EBITDA approaching four times gives me cause for concern. The company does, however, expect that to drop to under three times in the medium term.
How does CareTech look as an investment? I can’t help feeling that the negativity surrounding property at the moment has led to an undervaluation for the shares. If you think the property market has a strong long-term future, which I do, I think CareTech could be a profitable buy.
