EML Payments Limited

EML Details

Update from Central Bank of Ireland: EML Payments Limited (ASX: EML) provides enhanced payment solutions to its clients. As per a recent update on 25 November 2021, the company stated about its ongoing discussions with the Central Bank of Ireland, regarding its Irish subsidiary PCSIL’s receipt of correspondence from the CBI. On 19 May 2021, CBI has raised concern regarding PCSIL’s Anti-Money Laundering / Counter Terrorism Financing, risk and control frameworks and governance.

• As per the recent announcement, the CBI will allow PCSIL to sign new customers and launch new programs, but within the material growth restrictions.
• The CBI has also decided not to impose broad-based reductions in limit controls on programs of the company. The regulatory body seems to be satisfied with engagement with PCSIL in regard to agreeing with appropriate limits under its Risk Management and Controls Framework.
• The CBI also is of the view to put a material growth limitation over PCSIL’s total payment volumes to be imposed over the next 12 months, following confirmation that PCSIL’s remediation plan has been effectively implemented.

FY21 Performance Update: The company reported decent performance during the year with GDV of $19.7 billion, reflecting an increase of ~42% on the prior year.

• Revenue grew by ~60% to $194.2 million in FY21.
• Underlying NPATA also increased by ~54% to $32.4 million in FY21.

During Q1FY22 the company has signed 23 contracts and launched 64 programs. It ended the period with 114 programs across its operating regions.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:  The company’s line of business is prone to intervention from regulatory bodies, which can have a material impact on the EML’s performance.

Outlook: The CBI has guided PCSIL to provide it with submissions with regards to its growth limits, which it intends to do by 30 November 2021. PCSIL is positive on meeting its obligations with regards to removing the higher volume lower-yielding programs and comply with the material growth restriction.  

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of EML gave a positive return of ~28.08% in the past one week and a positive return of ~24.66% in the past one month. The stock is currently trading lower than the 52-weeks’ average price level band of ~$2.470 - $5.890. The stock has a support level of $2.90 and a resistance level of $3.92. The stock has been valued using the P/E based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). The company might trade at a slight premium than its peers’ average P/E multiple, considering its positive development in the CBI issue, and decent FY21 performance. For this purpose of valuation, few peers like Humm Group Ltd (ASX: HUM), Pushpay Holdings Ltd (ASX: PPH), WISR Ltd (ASX: WZR), and others have been considered. We have covered this stock as a ‘Speculative Buy’ recently at the price of $2.72 as on 24 November 2021. Considering the recent rally in the stock price, indicative correction in the valuation, inherent regulatory risks and the other key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $3.91, as on November 26, 2021, 10:33 AM (GMT+10), Sydney, Eastern Australia.

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. 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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