UK Edition
In a world where transactions and data are going online at a phenomenal rate, the need for security and safety when it comes to personal financial details is growing every bit as fast. This is where cybersecurity specialist GB Group comes into its own, and the firm’s latest set of full-year results is testament to that.
Sales rose by 12pc on a like-for-like basis in the 12 months to March 2021 and underlying operating profits rose by a fifth as strength in end-market segments such as fintech, e-commerce and cryptocurrencies more than compensated for weakness in areas that were affected by the pandemic, such as travel and leisure.
New customer wins were maintained and existing clients continued to take on extra services across GB Group’s identity, fraud and location offerings. Perhaps best of all, cash flow was robust and cash conversion strong.
As a result, GB Group turned a net debt position into a net cash one, even allowing for £3.9m in lease liabilities and £3.7m in contingent liabilities that relate to the price paid for past acquisitions.
As ever with this high-growth stock, the trickiest issue is valuation. A yield of 0.4pc will hardly appeal to income seekers, and a forecast price-to-earnings ratio of almost 50 may not call loudly to bargain hunters either.
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Yet GB Group has every chance of generating the sort of long-term earnings growth that will bring that multiple down, all else being equal – indeed our initial analysis of the company in 2016 wrestled with the same problem, and the shares have gained 245pc since then thanks primarily to strong earnings growth.
The past few years suggest that chasing the stock is not the best plan, however, again thanks to that valuation. Any pullbacks could give long-term growth-oriented investors a chance to top up holdings or build an initial position; otherwise GB Group remains a hold.
Questor says: hold
Ticker: GBG
Share price at close: 822p
Update: Pressure Technologies
The most recent set of interim results last week contains the latest disappointment from the specialist engineer Pressure Technologies, but the setback feels temporary, the shares are holding up well in the circumstances and the balance sheet has net cash, even allowing for lease liabilities.
The chief executive, Chris Walters, has identified order delays, contract phasing and even delayed steel deliveries as potential problems for the second half of the financial year, while the rebound in the price of crude oil has yet to boost orders from the oil and gas industry.
Shareholders were also spooked by the firm’s admission that it was technically in breach of its banking covenants on the basis of interest cover, owing to currently depressed levels of profitability.
Yet Pressure Technologies has enough cash to repay its entire £4.8m in borrowings from Lloyds, which run to November 2022, should it need to do so, and it would be perverse of the lender to pull the rug from under the company.
Nevertheless, it does raise the risk profile of the micro-cap firm and means its shares are suited only to very risk-tolerant investors, even if any rebound in orders from the oil and gas industry, a resolution of the technical covenant breach and the fledgling order book from the hydrogen energy market could yet be the source of welcome surprises in future.
It is going to be bumpy but the turnaround potential is still substantial.
Questor says: hold
Ticker: PRES
Share price at close: 97.5p
Update: ITV
Renishaw’s demotion from the FTSE 100 as of yesterday means that ITV is back in the big time as a member of Britain’s elite stock index.
That makes no difference at all to the broadcaster’s underlying business or to the book loss that we are still, regrettably, carrying after our initial study in 2016.
But it does help to highlight how a cyclical upturn in advertising could boost ITV’s revenues, earnings and cash flows, while the rash of major deals in the media industry – notably Amazon’s multi-billion-dollar swoop for MGM – may again focus minds on the value of ITV’s own content library.
Stay tuned in to ITV.
Questor says: hold
Ticker: ITV
Share price at close: 127.55p
Russ Mould is investment director at AJ Bell, the stockbroker.
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.