Questor: we’ve more than tripled our money on GB Group but hold on for further gains

Last week’s upbeat trading statement from GB Group, the cybersecurity specialist, confirms the company’s strong competitive position in what remains a hot and rapidly growing industry.

Contrarians and value hunters will pale when confronted by a price-to-earnings ratio that exceeds 50. But if the company keeps developing at its current pace that prospective multiple will fall quickly and look far less intimidating, especially as the company has frequently demonstrated its knack of supplementing rapid organic growth with shrewd acquisitions.

Chris Clark, the chief executive, has intimated that first-half sales will rise by 10pc year on year and that operating profits will increase by just over a quarter on an underlying basis. Those numbers leave the analysts’ consensus estimates of a 10pc slide in sales and one-third drop in profits for the whole fiscal year looking far too conservative.

We must not get too carried away. A big one-off contract in America helped first-half performance and will not be much of a factor in the second six months of the financial year to March 2021. Even so, the board expects full-year underlying sales to be at least flat and that should be enough to spark further upgrades in profit forecasts.

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The company’s expertise in identity and location verification and combating fraud surely means that it is well placed to thrive in a world where ever-increasing amounts of goods and services are being offered online to companies and consumers.

Cash flow remains robust and net debt has rattled lower by some £32m since the end of the last financial year. That is helping GB Group get back on the dividend list, even if the investment case is really all about capital gains, since the yield on the stock is small.

Nevertheless, shareholders will be pleased to see management say that it will declare an interim dividend of 3p per share alongside the first-half results, currently due in early December.

The company has not previously offered a first-half distribution, only a final one, and in the fiscal year to March 2020 it passed on the year-end payment too. The resumption of dividends speaks highly of confidence in future trading and although we already have a paper gain of more than 260pc on GB Group since our initial study almost four years ago there could be more to come.

Investors should keep riding the firm’s strong momentum.

Questor says: hold

Ticker: GBG

Share price at close: 865p

Update: IP Group

More good news from Oxford Nanopore Technologies offers further evidence of the huge potential that lies within the portfolio of IP Group, whose speciality is the commercialisation of intellectual property developed by British universities.

IP Group has a 15pc stake in Oxford Nanopore, the most valuable asset in its portfolio of more than 120 life science and technology companies. It is therefore encouraging to see (for many reasons, not just financial ones) that its Covid-19 test LamPORE is now being introduced in Germany, Switzerland and the UAE, as well as in Britain.

Oxford Nanopore is also working towards regulatory approval in America.

This burst of activity helped Oxford Nanopore to raise a further £84m from investors in a deal that supported previous valuations for the whole company of around £1.7bn. That puts a value of £258m on IP Group’s holding and in turn underpins the last stated net asset value per share for the whole company of 108p.

Investing in early-stage firms is risky by its nature, and income seekers will be deterred by the absence of a yield, but IP Group’s portfolio appears to be developing nicely.

Better still, the FTSE 250 firm’s shares still trade at a tempting 24pc discount to that NAV figure, even after their recent gains. Additional good news from Oxford Nanopore, or other holdings, could provide an increase in underlying asset valuations and a decrease in the discount to NAV to give the share price an extra boost.

We already have a paper gain of 42pc on IP Group but there could be more to come.

Questor says: hold

Ticker: IPO

Share price at close: 82.6p

Russ Mould is investment director at AJ Bell, the stockbroker

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