Analyst at Canaccord Genuity lowered their target price on software business GB Group from 1,000.0p to 950.0p on Tuesday following the firm’s acquisition of Acuant last week.
Canaccord stated it was “in two minds” about the £547.0m acquisition from private equity, noting that the deal strengthened GB’s product stack in the customer acquisition/onboarding identity verification space and added advanced platform functionality.
However, the analysts also said no matter how it looks at it, the 12.7x last twelve months sales and 63x LTM adjusted underlying earnings multiples were “very high”, particularly as they sit well above the roughly 8x and 18x, respectively, paid for IDology two and a half years ago.
The Canadian bank, which reiterated its ‘buy’ rating on the stock, said its new estimates implied mid-single-digit earnings per share dilution, and that it believes investors will probably need “a bit of time to digest this deal”.
“Ultimately though, we expect the market will appraise GBG again for continuing to deliver reliable organic growth in the teens. With the shares’ current ~30x cal. 2022E P/E sitting at the low end of the historic range, we see an attractive buying opportunity for long-term investors,” said the analysts.
Canaccord raised its estimates to incorporate Acuant, adding in an estimated low-20s percentage operating margin, the guided £5.0m incremental revenue and cost synergies as well as £155.0m in new debt and £387.0m in fresh equity.
“Overall, this leads us to raise our sales forecasts by 8% to 24%, while adjusted EPS are diluted by up to 6% due to the ~28% increase in share count. Overleaf we also show how this deal impacts GB Group’s return on capital employed, which we expect to dip to ~9% in FY22E and FY23E before improving again in FY24E to low-teens %.”