EML Payments Limited

EML Details

Correspondence from Central Bank of Ireland: EML Payments Limited (ASX: EML) is engaged in the provision of prepaid payment services in Australia, Europe and North America. The market capitalisation of the company as on 19 May 2021 stood at ~$1.86 billion. As per a recent update, the company’s Irish regulated subsidiary, PFS Card Services (Ireland) Limited, has received correspondence from the Central Bank of Ireland. The CBI has raised regulatory concerns in regards to PCSIL's Anti-Money Laundering / Counter-Terrorism Financing, risk and control frameworks and governance.

Acquisition of Sentenial Limited: On 7 April 2021, EML has announced that it has entered into a binding Share Purchase Agreement to acquire 100% of Sentenial Limited, which also includes its open banking product, Nuapay. The enterprise value for the deal is pegged at $108.6 million, along with an earn-out component of up to $62.1 million. The transaction will help EML to enhance its product offerings and include alternate payment products to its platform.

Sentenial Group Financial Performance (Source: Company Reports)

Change of Director’s Interest: On 9 April 2021, the company’s chairman has undergone a change of interest in the company and disposed of 263,779 shares.

Key Risks: The correspondence by the CBI states that it might issue directions to PCSIL pursuant to section 45 of the Central Bank Act 2013. If this fructifies, it could materially have an impact on the company’s European operations and could restrict PCSIL’s activities under the Irish authorisation. As per the company, ~27% of EML’s global revenue for the period 1 January 2021 to 31 March 2021 was obtained from PCSIL’s Irish authorisation.

Outlook: The company at present is unable to estimate the potential direct and consequential costs of the correspondence from CBI on the Group’s FY21 performance. However, excluding this impact, the company opines that it remains on track to achieve underlying full-year revenues to be between $180 - $190 million in FY21 and anticipates full-year NPATA to be between $30 - $ 33.5 million.         

Stock Update: The company has stated that it will continue to comply with the disclosure obligations and update the market on any developments accordingly. As per ASX, the stock of EML is trading below its average 52-weeks’ levels of $2.470-$5.890. The stock of EML gave a negative return of ~22.86% in the past six months and a negative return of ~47.06% in the past one week. On a technical analysis front, the stock of EML has a support level of ~$2.479 and a resistance level of ~$3.506. Currently, the stock is trading at a price of $2.800, down by 45.632% as on May 19, 2021. The decline has been due to the notice of correspondence by the Central Bank of Ireland to PCSIL regarding Anti-Money Laundering / Counter-Terrorism Financing, risk and control frameworks and governance. We suggest investors to keep a close eye on the development in this regard.

EML Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Fatfish Group Limited

FFG Details

Completion of Acquisition of Pay Direct: Fatfish Group Limited (ASX: FFG) is engaged in making investments in tech and internet companies. It has business interests in Southeast Asia and the Nordic European region. The market capitalisation of the company as on 19 May 2021 stood at ~$79.82 million. As per a recent update, FFG has announced the completion of the acquisition of a 55% stake in Southeast Asian-based Pay Direct Technology Sdn Bhd (Pay Direct). At present, it processes monthly $32 million worth of transactions and $380 million worth of transactions on an annual basis.

Q1FY21 Performance Update: During the given period, the Group’s investee company Smartfunding Pte Ltd has rolled out its BNPL service and plans to provide working capital loans to small and medium enterprises in Singapore and Southeast Asia region. It’s another investee company Fatberry Sdn Bhd recorded an impressive growth of ~6800% in revenues, compared to the June 2020 period. The total customer receipts during the period were reported at $29,000 for FFG.

Q1FY21 Cash flow from Operations (Source: Company Reports)

Key Risks: The Group’s business model exposes FFG to equity price risk due to its investment in various firms. Any adverse impact on the investee company’s financials or performance might have an impact on the holding value of FFG in that respective company.

Outlook: The acquisition of Pay Direct should augur well for the company. It operates QlicknPay, which is an integrated payment gateway technology suite and enables financial institutions to set up and offer online payment services. This technology is used by an extensive list of premium clients and includes OCBC Bank and other major Southeast Asian banks.

Stock Recommendation: On 22 April 2021, the company has announced that Singapore Central Bank has approved FFG’s claim to increase its stake in Smartfunding to 89.4% from 78.7%. As per ASX, the stock of FFG is trading below its average 52-weeks’ levels of $0.006-$0.430. The stock of FFG gave a positive return of ~72.34% in the past six months and a negative return of ~14.73% in the past one week. On a technical analysis front, the stock of FFG has a support level of ~$0.074 and a resistance level of ~$0.103.  Considering the current trading levels, successful completion of the acquisition of Pay Direct, improved performance in its investee companies and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.081, down by ~3.572% as on May 19, 2021.

FFG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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