EML Payments Limited

EML Details

 Key Business Updates: EML Payments Limited (ASX: EML) is engaged in providing prepaid payment services in Australia, Europe, and North America.

• Regulatory Concerns from CBI: On 7 October 2021, EML announced that CBI is investigating in the matter of PFS Card Services (Ireland) Limited (PCSIL), a regulated subsidiary of EML, and potential directions, including but not limited to material growth and remediation plan. The CBI has invited PCSIL to deliver submissions regarding potential directions, which PCSIL intends to submit by 28 October 2021.
• Acquisition of Sentenial Limited: On 30 September 2021, EML confirmed the completion of Sentenial Limited acquisition at an upfront enterprise value of EUR70 million (A$112.7 million) with an additional earn-out component of up to EUR40 million (A$64.4 million). The acquisition is termed as Accelerator Strategy by EML, which aims to expand into international markets via Nuapay open banking product suite.

FY21 Financial Performance

• Bulging Top-Line: In FY21, total revenue inclined significantly to $194.18 million, edged up by 60% YoY. GDV (Gross Debit Value) for the period stood at $19.68 billion, considerably up by 42% YoY. Revenue conversion for the period stood at 99bps, an uptick of 13%.
• Operational Performance: During the period, EML reported an underlying net loss after tax of $17.34 million relative to a loss of $7.14 million reported in FY20. Gross profit margins took a 6ppts hit, down to 67%, and stood at $130.38 million. EBITDA inclined by 30% and was registered at $42.18 million.
• Financial Position: As of 30 June 2021, the cash balance stood at $141.23 million, up 19% from the prior year record. Contract assets took a hit of $2.7 million due to faster cash conversion and lowered GDV under North American bank agreements.
• Regulatory Errors: Regulatory issues were pinpointed on EML’s acquisition in overlooking the cardholder liability, which cost $28.2 million. EML incurred $11.35 million in costs concerning the CBI matter.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges: The correspondence by the CBI regarding PCSIL may intensify price downside. Moreover, if the matter fructifies, it could pose a material impact on EML’s European operations and could constrain PCSIL’s activities under Irish authorities.

Outlook: For FY22, EML expects GDV to range from around $93 billion to $100 billion, and revenue is estimated to wander between $220 million and $255 million. Underlying EBITDA for the period is projected at $58 - $65 million. EML maintains three key strategic actions – digital product strategy, global technology infrastructure development, and investments in strategic partnerships.

Stock Update: The market participants reacted negatively post announcement on receipt of further correspondence from CBI in the matter of PCSIL. The stock of EML gave a negative return of ~45.043% in the six months and a negative return of ~15.733% in the past one week. The stock is currently trading lower than the 52-weeks’ average price level band of $2.470 - $5.890. On the technical front the stock of EML has a support level of ~$2.890 and a resistance level of ~$3.960. The stock closed at the market price of $3.160, as of 09 October 2021, down by ~14.595%. The decline was primarily due to correspondence update by Central Bank of Ireland to PCSIL, in addition to which CBI proposed specific limits on EML run programs that, if implemented, could deaccelerate PCSIL growth.

EML Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings.

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