EML Payments Limited

EML Details

Stock Trading Close to 52-Week High: EML Payments Limited (ASX: EML) offers innovative financial technology to provide solutions for payouts, gifts, incentives and rewards, and supplier payments.

EML Signs Multi-Year Agreement with Smartgroup: The company recently announced that it has entered into an 8-year agreement with Smartgroup Corporation Limited (ASX: SIQ) to be their provider of branded General Purpose Reloadable card programs for payout of Salary Packaging benefits. EML expects that the incremental volume will lead to $4 - $8 million revenue per annum, provided there are no adverse changes in the market conditions.

EML is the largest provider of payment solutions to the Salary Packaging industry with >160,000 benefit accounts already in the market. Including this contract, EML is likely to offer services to >260,000 benefit accounts by April 2022. Total annual Gross Debit Volume for this vertical is expected to be ~ $2 billion once the transition is complete.

Acquisition of Flex-e-Card Limited (FEC): EML has recently, announced the 100% acquisition of Flex-e-Card through its wholly owned subsidiary, EML Payments Europe Limited. For that matter, EML executed a SPA (Share Purchase Agreement) to acquire 100% ownership share in FEC for a total consideration of GBP21.6 million (~AUD 40.5 million). The purchase price is an upfront cash payment of £21.6 million (c AUD 40.5 million) which is an implied EBTDA multiple of approximately 10x forecast EBTDA for the calendar year ending 31 December 2019.

As a source of fund for the transaction, the company will use Group Cash reserves GBP 13.7m (c AUD 25.5m), which accounts for ~1/2 of group cash reserves. Apart from cash, debt facility with a major Australian Bank – GBP 8.0m (c. AUD 15.0m) is drawn down with 12-month facility maturing in FY20. FEC is likely to witness $4.0m - $4.1 million of EBTDA in the first year of ownership. At the midpoint of EMLs’ FY19 guidance, it equates to ~14.5% EBTDAPS (earnings before interest tax, depreciation and amortisation per share) accretion.

1H FY19 Results Highlights: The Group Gross Debit Volume (GDV) stood at $4.15 billion, up 16% on pcp. Total revenue for the Group came in at $47.2 million, representing a growth of 39% on pcp driven by the growth across all segments.
Group EBTDA at $13.74 millionwitnessed a significant growth of 50% on the pro forma prior comparative period. The company remains debt free with $50.1 million of cash on hand.


H1 FY19 Business Update (Source: Company Reports)
 
Outlook: On a full-year basis, FY19 EBTDA guidance has been slightly increased from the range of $26 million- $28 million to $27 million- $28 million and the midpoint would represent a 32% statutory YoY increase.

Underlying Operating Cashflow as a percentage of EBTDAis expected to be in the range of 70%-80%. Revised guidance for FY19 revenue is expected to be between $88-$94 million.

Stock Recommendation: The stock of EML Payments has generated a substantial wealth to the investors with 1-year return of ~98%. In the time span of the previous 1-month, the stock has gained ~31%. At the current market price of $2.540 per share, the stock is trading at the price to earnings multiple of 227.680x.

With the recent development in terms of acquisition and agreements, the company has witnessed strong growth in the past and is expected to leverage the synergies, going forward. The stock is currently trading close to its 52-week high of $2.580 per share. As on May 27, 2019, the market capitalisation of EML Payments Limited stood at ~$638.15 million.

Hence, considering the improving financials, fundamentals, recent tie-ups/acquisition, we put our “Hold” recommendation on the stock at the current price of A$2.540 per share (down 0.392% on May 27, 2019).


EML Daily Chart (Source: Thomson Reuters)

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