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With its Q322 trading update, EML Payments downgraded its guidance for FY22. A number of factors have combined to weigh on revenue and increase overheads. We have revised our forecasts to reflect lower revenue growth and a higher cost base, cutting our EBITDA and NPATA forecasts for FY22–24. In our view, resolution of the Irish regulatory issue and rising interest rates are the two main factors that could provide earnings and share price upside.

With its Q322 trading update, EML Payments downgraded its guidance for FY22. A number of factors have combined to weigh on revenue and increase overheads. We have revised our forecasts to reflect lower revenue growth and a higher cost base, cutting our EBITDA and NPATA forecasts for FY22–24. In our view, resolution of the Irish regulatory issue and rising interest rates are the two main factors that could provide earnings and share price upside.

EML Payments - Weaker European business drives downgrades

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Event-Driven

<ul>
<li>In response to an <a href="https://www.afr.com/street-talk/bain-capital-checks-out-eml-payments-bankers-chase-other-buyers-20220412-p5acvc" target="_blank" rel="noopener">AFR article</a>, <a href="https://www.smartkarma.com/entities/eml-payments-limited" target="_blank" data-smartkarma-citation="entities:3232:1" rel="noopener">EML Payments Limited (EML AU)</a> confirmed takeover interest from Bain Capital. However, discussions have ceased. The shares closed 10.5% higher at A$2.94. </li>
<li>The bombed-out share prices of payment companies have supported recent M&amp;A activity such as <a href="https://www.smartkarma.com/entities/afterpay-holdings-ltd" target="_blank" data-smartkarma-citation="entities:24047:1" rel="noopener">Afterpay Holdings (AFY AU)</a>/<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> and <a href="https://www.smartkarma.com/entities/sezzle-inc" target="_blank" data-smartkarma-citation="entities:30969:1" rel="noopener">Sezzle Inc (SZL AU)</a>/<a href="https://www.smartkarma.com/entities/zip-co-ltd-3708706d-4978-4e29-acbc-d9702b971da9" target="_blank" data-smartkarma-citation="entities:29126:1" rel="noopener">Zip Co Ltd (Z1P AU)</a>.</li>
<li>Despite today’s pop, the shares are still 50% down over the last 12 months. EML’s market positioning and expected stronger 2HFY22 should continue to fuel takeover interest.</li>
</ul>


In response to an AFR article, EML Payments Limited (EML AU) confirmed takeover interest from Bain Capital. However, discussions have ceased. The shares closed 10.5% higher at A$2.94. 
The bombed-out share prices of payment companies have supported recent M&amp;A activity such as Afterpay Holdings (AFY AU)/Square Inc (SQ US) and Sezzle Inc (SZL AU)/Zip Co Ltd (Z1P AU).
Despite today’s pop, the shares are still 50% down over the last 12 months. EML’s market positioning and expected stronger 2HFY22 should continue to fuel takeover interest.


EML Payments Flirtation with Bain Likely Not the Last

In H122, EML Payments saw recovering demand in its Gift & Incentives (G&I) division as COVID risk recedes, strong underlying demand in its GPR division, and the inclusion of Sentenial in Digital Payments from Q222. EBITDA and NPATA were affected by EML’s investment in strengthening its compliance function and undertaking the remediation plan to meet the Central Bank of Ireland’s requirements. The company expects a stronger performance in H222 with the benefit of rising interest rates, and action taken to reduce certain costs and introduce new sources of revenue. Our forecasts continue to sit at the lower end of unchanged guidance for FY22.

In H122, EML Payments saw recovering demand in its Gift & Incentives (G&I) division as COVID risk recedes, strong underlying demand in its GPR division, and the inclusion of Sentenial in Digital Payments from Q222. EBITDA and NPATA were affected by EML’s investment in strengthening its compliance function and undertaking the remediation plan to meet the Central Bank of Ireland’s requirements. The company expects a stronger performance in H222 with the benefit of rising interest rates, and action taken to reduce certain costs and introduce new sources of revenue. Our forecasts continue to sit at the lower end of unchanged guidance for FY22.

The latest correspondence from the Irish regulator clarifies the volume limits within which EML’s Irish-regulated subsidiary can trade while its remediation plan is being carried out. PFS Card Services Ireland (PCSIL) can sign new customers and launch new programmes as long as it stays within the material growth restrictions set by the regulator. This represents a step forward in meeting the regulator’s requirements and should allow the business to resume implementing programmes that had been put on hold. EML continues to target substantial completion of the remediation programme by the end of CY21 and full completion by the end of March 2022.

The latest correspondence from the Irish regulator clarifies the volume limits within which EML’s Irish-regulated subsidiary can trade while its remediation plan is being carried out. PFS Card Services Ireland (PCSIL) can sign new customers and launch new programmes as long as it stays within the material growth restrictions set by the regulator. This represents a step forward in meeting the regulator’s requirements and should allow the business to resume implementing programmes that had been put on hold. EML continues to target substantial completion of the remediation programme by the end of CY21 and full completion by the end of March 2022.

EML Payments - Making progress with the Irish regulator

EML provided a Q122 trading update at its AGM, confirming GDV growth of 14% y-o-y, revenue growth of 29% and underlying EBITDA growth of 11%. Management updated guidance for FY22, tightening the revenue range and leaving the underlying EBITDA and NPATA ranges unchanged. EML is in ongoing dialogue with the Irish regulator and is aiming to substantially complete its remediation plan by the end of CY21. We have revised our forecasts to reflect updated guidance, maintaining our underlying EBITDA and NPATA forecasts this year and reducing them in FY23 and FY24 to reflect slightly lower GDV forecasts for GPR and Digital Payments.

EML provided a Q122 trading update at its AGM, confirming GDV growth of 14% y-o-y, revenue growth of 29% and underlying EBITDA growth of 11%. Management updated guidance for FY22, tightening the revenue range and leaving the underlying EBITDA and NPATA ranges unchanged. EML is in ongoing dialogue with the Irish regulator and is aiming to substantially complete its remediation plan by the end of CY21. We have revised our forecasts to reflect updated guidance, maintaining our underlying EBITDA and NPATA forecasts this year and reducing them in FY23 and FY24 to reflect slightly lower GDV forecasts for GPR and Digital Payments. 

Australia

EML Payments Limited is a financial services company that specializes in pre-paid financial cards.

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EML Payments Limited (EML AU)

EML Payments - Weaker European business drives downgrades

With its Q322 trading update, EML Payments downgraded its guidance for FY22. A number of factors have combined to weigh on revenue and increase...

Edison Investment Research

EML Payments Flirtation with Bain Likely Not the Last

EML confirmed takeover interest from Bain Capital but discussions have ceased. EML’s market positioning and expected stronger 2HFY22 should...

Arun George

EML Payments - Improving outlook

In H122, EML Payments saw recovering demand in its Gift & Incentives (G&I) division as COVID risk recedes, strong underlying demand in its...

Edison Investment Research

EML Payments - Making progress with the Irish regulator

The latest correspondence from the Irish regulator clarifies the volume limits within which EML’s Irish-regulated subsidiary can trade while its...

Edison Investment Research

EML Payments - Reassuring Q1 update

EML provided a Q122 trading update at its AGM, confirming GDV growth of 14% y-o-y, revenue growth of 29% and underlying EBITDA growth of 11%....

Edison Investment Research

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