EML Payments

 
Diversified revenue streams push growth: EML Payments Limited (ASX: EML) posted growth of 23% in the FY18 revenue at $71,02mn compared to FY17 revenue of $57.9mn and net profit for FY18 has increased at whopping 24433% to $2.20 mn. Australia has contributed maximum in terms of percentage in the revenue growth of the company. The company is determined to keep up its investment in proprietary software to rake in growth opportunities and acquisition synergies. Higher revenue was realized mainly on account of growth in Organic revenue. Diversified revenue streams in Australia along with progress in North America and Europe post Reloadable program in FY17 have been driving growth for the company this year.


Scenario Going ahead (Source: Company Reports)

One of the major positives this Financial Year has been 25% increase in the recurring revenue at $65.1 million, contributing 92% of total revenue. EML is a debt free company with significant cash reserve of $39.0mn which is planned for reinvestment in the organic and inorganic growth opportunities. Despite various challenges, the group maintained the gross profit margin with rise in reloadable and B2B virtual payments. Growth in reloadable programs is driving transaction fee revenue, and more diversification comes from different geographies.

Stock Performance: The stock has generated decent return of 33% in last six months and is trading in the positive territory. After falling from the high of $2.06 to the low of $1.09 earlier this year, the stock has recovered half and is looking attractive at the current levels. Price momentum strength indicator has already dropped from the overbought zone and short term moving averages suggest sound health of the stock. We recommend the investors to ‘HOLD’ the stock at the current market price of $1.78.
 

Zip Co

Consumer Base Underlines The Year: Zip Co Limited (ASX: Z1P) has posted sound FY18 results with revenue up 138% at $40.4 million from $17 million in pcp. Financial Year 2018 witnessed increased number of customers base by 145% to more than 738,000 whereas partners number was up to over 10,500, an increase of 139%. The year has been a transforming one for Z1P with the company making progress on every front from widening customer base to launching new brands.


Key Highlights (Source: Company Reports)

The company’s business model is promising as it can run simultaneously with credit cards and other Pay Later options. Alternate payment method with interest free option has strong appeal to the consumers which has been reflected in the company’s growing customer base. From the demographic perspective, majority of the millennials are interested in what Z1P has to offer. The company stated that their audience includes 60% below the age of 35 and Median age is 31.

Z1P has shown visible growth in all the aspects of the business and its FY19 deliverables also look promising. The company targets for over $1 billion in annual transaction volume. In addition, the target for number of consumers with active account is set to over 1 million which looks achievable, going by the current growth rate in respect to customer base.

Stock Performance: Stock has reflected the health of the company through its price movement, generating the YTD return of 60%. We recommend for a ‘HOLD’ rating on the stock at the current market price of $1.135 (up 2.7% on August 31, 2018), expecting that the company is ascending in the right direction of growth while the group now tethers on new relationships (including the one with Virgin Australia).
 

EML and Z1P Price Movements (Source: Thomson Reuters)

Comparative Study
Historical Price comparison of the two stocks with the benchmark financial and technology sectors’ indices over 5 years has shown the outperformance of both the stocks. Both the shares have added more value to the shareholders. At current levels, both the stocks look poised to move a bit up, staging recovery from the recent lows. While Z1P has been better in terms of price movement in last one year but earnings per share have been in a positive zone for EML.


EPS Scenario (Source: Thomson Reuters)

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