EML Payments Limited

 
PFS Acquisition to Aid Higher Operating Leverage: EML Payments Limited (ASX: EML) is engaged in the issuance of prepaid payment services across Australia, Europe and North America. On 11 November 2019, EML informed that it has entered into a binding agreement to acquire 100% of Prepaid Financial Services Limited (PFS) for an enterprise value of $423 million along with an earn-out component of up to $103 million. The company also issued 18,824,660 new Shares on account of placement to new and existing institutional shareholders and 51,091,614 shares under an accelerated, pro-rata, non-renounceable entitlement offer, for a price consideration of $3.55 per share.
 
As per a market update, the securities of EML will be placed in a trading halt, on account of a pending announcement. Unless otherwise notified by ASX, the securities will remain in a trading halt until 13 November 2019 or when the announcement is released.
 
Financial Highlights for the year ended 30 June 2019: EML announced its full-year FY19 results wherein, the company reported total revenue of $97.2 million, up 37% on Y-O-Y basis and a NPAT of $8.45 million, an increase of 283% over FY18. The company witnessed revenue growth in all segments through organic and acquisition growth. Group Gross Debit Volume (GDV) during FY19 came in at $9.03 billion as compared to $6.75 billion in FY18. EML reported EBITDA at $29.1 million, up 40% on the previous financial year. Operating cashflow for the period stood at $22.1 million during FY19.
 

FY19 Financial Highlights (Source: Company Reports)
 
Guidance: The acquisition of Prepaid Financial Services is expected to place EML as one of the leading global fintech companies in open banking and prepaid segment, with the group expected to process an aggregate GDV of ~$18bn in FY20. In FY20, the combined group is expected to deliver an attractive three-year (FY18 – FY20) pro forma net revenue of CAGR of more than 25% and a pro forma EBITDA margin of over 30%.
 
Stock Recommendation: At market close, the stock ended at $3.830 with a market capitalization of $978.4 million. The stock has generated returns of 29.39% and 85.92% during the last three-months and six-months, respectively. Recent acquisition of Prepaid Financial Services Limited is expected to aid higher operating leverage across its European operations and would reaffirm EML’s footprint as a leading global fintech companies in open banking and prepaid category. Considering the aforesaid facts, recent price movement and upcoming business prospects, we have watch view on the stock at the current market price of $3.830 as on 11 November 2019 and suggest investors to wait for better entry levels.
 

Bubs Australia Limited

Strategic Alliance to Drive Greater Business Prospect: Bubs Australia Limited (ASX: BUB) provides a range of premium infant nutrition products like goat milk, organic grass-fed infant formula ranges, organic baby food, cereals and toddler snacks, etc. On 11 November 2019, the company informed that it has marked its entry into the Vietnamese infant nutritionals market, through the distribution of its BubsÒ product portfolio in Vietnam’s largest Mother & Baby store chain, Bibo Mart JS Company. The company also made a Master Distribution Agreement with Viet Nam TVV Service and Trading Company Limited (TVV) to service Bibo Mart and other Mother and Baby stores in Vietnam.
Recently, the company has also announced its strategic agreement with Alibaba CIP, which will allow BUB to explore China’s $2 billion goat dairy market. Alibaba Group, through its Centralised Import Procurement (CIP) initiative, provides the benefit of a large base of 700 million active users on its platform.

Q1FY20 Highlights for the period ending 30 September 2019: The company declared its first quarter FY20 financial update wherein, the company reported gross revenue at $14.21 million, up 58% on the prior comparable period. This was aided by a continuous focus on the four-pillar growth strategy, combined with investments in supply chain and manufacturing capabilities. Gross sales of Bubs Infant Nutrition products reported an increase of 66% on pcp, representing 38% of gross sales for Q1FY20. Sales of adult milk powder grew by 100% on pcp, representing 53% of gross sales. Fresh milk products reported a decline of 45% pcp, on account of disposal of non-core coach house dairy assets. The company reported net cash used in operating activities at $4.15 million. An amount of $1.09 million was used in investing activities. The company reported a cash balance of $17.98 million at the end of the quarter.
 
 

Q1FY20 Cash Flow Highlights (Source: Company Reports)

Guidance: The company expects a cash outflow of $23.83 million in Q2FY20 on account of product manufacturing and operating costs of $16.77 million, advertising and marketing costs of $3.12 million, administration and corporate costs of $2.20 million and staff costs amounting to $1.74 million.

Stock Recommendation: The stock of the company is trading at $1.120 million with a market capitalization of $550.06 million. 52-week trading range of the stock stood at $0.335 to $1.615 and currently, the stock is trading above the average of the range.  The stock has corrected 14.06% and 28.90% in the last three-months and six-months, respectively. Recent strategic agreement with Alibaba CIP along with entry into the Vietnamese infant nutritional market is expected to boost growth with access to new and growing geographies. Considering the above factors, we recommend a ‘Speculative Buy’ on the stock at the current market price of $1.120, up 4.673% on account of announcement regarding launch into Vietnam.

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