EML Payments Limited Tracks Steady Recovery Despite May Trading Halt

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EML Payments Limited Tracks Steady Recovery Despite May Trading Halt

  • FY21 Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) up 65 per cent at $53.5 million
  • FY21 underlying Net Profit After Tax plus Amortisation (NPATA) is up 54 per cent, at $32.4 million
  • FY22 EBITDA guidance between $58 to $65 million

Digital payment solutions have fast become a feature throughout the ‘contactless’ pandemic, even gaining in popularity along with the rise of global e-commerce businesses, and well before COVID-19. While payment solutions developed by industry leaders such as EML Payments Limited (ASX:EML) and Afterpay Limited (ASX:APT) have quickly and easily captured the fascinations of investors, they have likewise attracted the scrutiny of regulators, as seen with EML’s May announcement of its PFS Card Services (Ireland) Limited (PCSIL) subsidiary addressing regulatory concerns in Ireland.

As a result, the company presented shareholders with a request for a trading halt, while it addressed correspondences by the Central Bank of Ireland (CBI). Specifically, the CBI’s regulatory concerns originally pertained to PCSIL’s anti-money laundering and counter terrorism financing risk and control frameworks and governance. Yesterday, the EML released an update to the original compliance request by CBI, clarifying that regulatory concerns for PCSIL were more limited to its remediation plan and material growth. Specifically, CBI noted that the Irish subsidiary’s proposed material growth policy was much higher than what the regulator expects.

The material impact of these compliance concerns raised by CBI are estimated to amount for 27 per cent of EML’s global consolidated revenue, between the period of 1 January to 31 March 2021. While ongoing dialogue continues between the regulator and PCSIL, it will next see a development on 28 October 2021, when the company presents additional submissions in accordance with given directions. 

Just prior to the CBI announcement, EML shares tracked a new all-time high of $5.80 per security in April. However, the 19 May CBI correspondence was seen to correlate with a steep selling off of its shares, plunging the company’s stock price to a lows of $2.80. At the time of writing, EML’s price correction has since stabilised at around $3.20 per share, just 1.52 per cent lower as compared to the prior corresponding year.

Anticipating Steady Gains through Strategic Acquisition

EML’s global operations sees it focused on three primary business segments: General Purpose Reloadable,  Gift & Incentive, and Virtual Account Numbers. Each of its segments presented gross profits of between 58 to 81 per cent for FY21. In its FY21 reporting, the company presented a record year with underlying EBITDA of $53.5 million, up 65 per cent compared to FY20. Additionally, its underlying NPATA is up 54 per cent, at $32.4 million.

In line with its growth strategy, EML recently announced the completed acquisition of Sentenial Limited, and its open banking product suite, Nuapay. This scalable bank-grade addition to EML’s existing suite of payment solutions sees the group well-positioned to provide a unique set of product capabilities within its European market.

For FY22, the group expects its underlying EBITDA to be within the range of $58 to $65 million. These are based on a handful of assumptions which include economies rebounding from COVID-19, starting as early as Christmas, no material changes to central bank interest rates within the UK, Europe, US or Australia, and that its acquisition of Sentenial will contribute to its overall EBITDA for the coming year.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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