EML Payments Ltd (ASX: EML)

EML payments’ stock plunged 19.8% on February 21, 2018 with the release of the half year 2018 result. The group’s Gross Debit Volume (GDV) totalled $3.58bn reflecting an increase of 86% over the prior period; and excluding the impact of movement in foreign exchange rates, group GDV would have been approx. $0.1bn higher. The revenue for HY2018 of $38.2m surged 18% over prior period, and revenue / GDV metric was 107bps, in line with group’s guidance. Group EBTDA for HY2018 was up 35% to $13.5m. Adjusting for constant foreign exchange rates, primarily in the USA, EBTDA would have been $13.9m. EML also highlighted that the group’s financials are witnessing lesser seasonality with the launch of Reloadable and B2B Virtual programs which now account for 87% of Group GDV compared to 77% in HY2017.

Gross Margins of 75.1% was up from 73.6% in Q1, but down on HY2017 though in line with the latest guidance. This was at the back of the product mix shifts towards Reloadable and B2B Virtual Payments.

While the result seems to be little below market expectations, catalysts that can help the stock in the long-term relate to the signed letter of intent with the largest mall operator in Germany, operating in excess of 90 malls, and confirmation of upcoming gaming contracts in Europe. Further, the group’s breakage has been reduced from 59% of revenues in the HY2017 to 41% in HY2018, declining as a percentage as Reloadable and B2B Virtual Payments increased. For Wijnegem Mall, 5-year contract to launch a pre-paid consumer gift card program with expected loads in excess of €6.5 million is another highlight. Furthermore, recently acquired PRESEND is expected to contribute A$1m in EBTDA to the Group in FY19. The group also aims to improve Gross Profit margin with efforts on self-issuing which has commenced in Australia and to be pursued in Europe and new programs, with a target of 80% set for the long term. While the next 6 to 12 months will be crucial in terms of the cash management and growth levers, we give a “Hold” at the current price of $1.415
 

5-year Performance (Source: Company Reports)

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