Company Overview: EML Payments Limited, formerly Emerchants Limited, is a payments solutions provider of prepaid financial card products and services. The Company's segments include Australia Reloadable, Australia Non-Reloadable, Europe and North America. By using its payments software and processing platform, the Company provides its clients with financial service payment solutions for reloadable and non-reloadable prepaid card programs, in Australia, the United Kingdom and Europe, the United States and Canada. It offers various solutions, such as consumer lending, EachWay cash load solution and commercial solutions. It provides prepaid solutions, such as treasury, and compliance and fraud management. EachWay cash load solution allows customers to convert cash to value in their gaming account, and to deposit cash at a retailer for instant value in the gaming account. It delivers general purpose reloadable and non-reloadable prepaid card based solutions for clients across various industries.

EML Details

2017 has been a significant year for EML Payments Ltd (ASX: EML) as it achieved its objective of expanding the Company’s footprint across new geographies and business verticals whilst introducing additional product capabilities and business solutions for its clients. The financial result for EML saw strong revenue growth of 149 per cent over the prior year driven by both acquisitions and organic growth. It is expected that 2018 will experience a strong growth in terms of revenues and free cash flows as delivered in 2017.

Mixed Financial Performance: EML released its 2018 Half Yearly Results and generated an operating outflow of $3.4 million as compared to an operating inflow of $9.6 million in the prior corresponding period while revenue increased by 18 per cent and amounted to $38.2 million as compared to the corresponding period in the prior year. EBTDA increased by 35 per cent and amounted to AUD13.5 million, driven by the improvements from its regional business units as compared to prior comparative period in local currency. Gross Debit Volume converted to revenue at approximately 107 bps which was in line with the expectations. Gross profit on revenue was generated at 75 per cent which was in line with the full year results, but as compared to previous year it was 78 per cent. This decline was due to the inclusion of the new Reloadable vertical in North America and Salary Packaging programs in Australia last year. The group reported for a profit loss of $2.03 million for the half-year ending December 31, 2017 and this was below expectations. On the other hand, EML remained debt-free and cash as on 31 December 17 was $35 million (down by 13 per cent from 1HFY17) and breakage accruals amounted to $19 million which will convert to cash over the coming 24 months. After the changes in the US tax rates, the Group had written down the deferred tax assets by $1.0 million and in the long term the lower corporate tax rate will benefit the group.
 

Revenue Trend (Source: Company Reports)
 
Gross Debit Volume (GDV) and Stored Value Balance: GDV is the most important metric in the Company and an increase in GDV demonstrates both organic growth in volumes for programs that are already in market and contributions to GDV from recently launched programs. In the half year, GDV increased by 86 per cent across all the regions and sales segments and amounted to $3.58 billion as compared to corresponding period in the prior year. Stored Value Balance is the static balance of funds held in financial institutions on behalf of customers on which interest revenue is generated. An increase of 31 per cent as compared to the same period in the prior year was recorded in its Stored Value Business and amounted to $515 million and the group is well positioned to take the advantage of the rising interest rates globally. $1.84 billion of GDV was generated from the Reloadable segment, which is an increase of 575 per cent against HY2017. The Stored value/Gross Debit Volume Ratio improved to 14.4 per cent as compared to 10 per cent in HY2017.
 
 
GDV and Stored Value Trend (Source: Company Reports)
 
Successful Business Developments: In addition to strong organic growth, the Company signed several new business partnerships that will be accretive to FY19 and beyond. The Group signed multiple B2B Virtual Programs in the USA and launched 25 programs out of a potential of 1500 programs. It continues to expand in its Mall card segment and signed a new agreement with Wijnegem, the largest mall in Belgium. This mall generated EU$6.5 million in GDV (A$9.75million). It signed contracts for Reloadable programs and with multiple European gaming operators like Betsson, Fortuna and BETDAQ. It is expected that other programs will launch after the soccer world cup in Q1FY18. It acquired Presend Nordic AB, a leading service provider of Non-Reloadable solutions, to realise the synergies from the insourcing functions such as issuing, and transaction processing; and the acquisition will generate A$1 million of incremental EBITDA in FY19.
 

Glimpse of Business Development and Associations (Source: Company Reports)
 
Other Developments within the Company: EML remains on track to launch payments on all the mobile “PAYS” within the next six months. The Company has invested IT Development resources into this project in addition to one-time and the third-party fees payable to the various companies for integration into their systems. Bob Browning retired from the Board on 20 February 2018. Dr Kirstin Ferguson and Melanie Wilson were appointed as directors of the Company on 14 February 2018. In June 2016, EML purchased the North America business, which at that time was providing gift card solutions to shopping malls and was processing only services for B2B Virtual Payments. In the full financial year, EML owned the business and expanded its offerings so as to include Reloadable products and programs that were managing Virtual Payments offerings. Pie Funds Management Limited ceased to be a substantial holder of EML Payments Limited since 01 March 2018 and some of the board members sold their stake (including David Liddy (director), sold around half of his stake for $1.6 million).

Outlook: New gaming program launched in Europe is likely to be delayed from Q4FY18 to Q1FY19 due to preparations and planning for the 2018 Soccer World Cup and it remains in contract for negotiation with 6 gaming operators that will launch in FY19. European mall opportunities will accelerate FY19 GDV and therefore revenue and EBTDA.  It is expected that Gross Margin will remain steady that is around 75 per cent. It will continue its strategy of expanding the Company through carefully targeted acquisitions in addition to the organic growth in its key markets.

Stock Performance: Net Tangible Asset per security as on 30 June 2017 was 0.24 and was 0.27 as on 31 December 2017. ROE in 2016 was 0.1 per cent and in 2017 was 0 per cent. EML is actively seeking opportunities to create scale and capability worldwide. About 91 per cent of the company’s revenues are now recurring from the Company’s expanded international presence that is reflected in 77 per cent of the revenue which is earned from offshore. It is expected that the Company will experience a boost in the interest income over next several periods as interest rate will likely rise in Europe and in United States where majority of the stored value is held. The stock price declined by 26.7 per cent in the past six months and by 27.87 per cent in the past one month as the market was expecting more in terms of performance in the half year. The Company still has several growth drivers which are expected to boost earnings over the next few years. We give a “Speculative Buy” on the stock at the current market price of $1.265
 

EML Daily Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations