EML Payments — Irish regulator extends growth cap

EML Payments (ASX: EML)

Last close As at 27/03/2024

AUD1.27

0.08 (6.28%)

Market capitalisation

AUD449m

More on this equity

Research: TMT

EML Payments — Irish regulator extends growth cap

The Irish regulator has extended the growth cap on European General Purpose Reloadable (GPR) volumes for an additional 12 months to the end of CY23. This limits growth of volumes in Europe (ex-UK) to 10% over the baseline volume in the first nine months of CY22. This restriction could be lifted early, if third-party assurance of ongoing remediation work is finalised before the end of CY23. We have revised our forecasts to reflect slower volume growth in GPR and higher compliance-related overheads.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

EML Payments

Irish regulator extends growth cap

Regulatory update

Software and comp services

15 November 2022

Price

A$0.525

Market cap

A$196m

Net debt (A$m) at end FY22

10

Shares in issue

374m

Free float

93%

Code

EML

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(21.8)

(54.4)

(81.6)

Rel (local)

(26.1)

(54.8)

(80.5)

52-week high/low

A$3.63

A$0.41

Business description

EML Payments is a payment solutions company managing thousands of programmes across 32 countries in Europe, North America and Australia. It provides payment solutions for banking, credit and disbursement services, earned wage access, gifts, incentives and rewards, and open banking and FX.

Next events

AGM

25 November 2022

Analysts

Katherine Thompson

+44 (0)20 3077 5730

EML Payments is a research client of Edison Investment Research Limited

The Irish regulator has extended the growth cap on European General Purpose Reloadable (GPR) volumes for an additional 12 months to the end of CY23. This limits growth of volumes in Europe (ex-UK) to 10% over the baseline volume in the first nine months of CY22. This restriction could be lifted early, if third-party assurance of ongoing remediation work is finalised before the end of CY23. We have revised our forecasts to reflect slower volume growth in GPR and higher compliance-related overheads.

Year end

Revenue
(A$m)

PBT*
(A$m)

NPATA** (A$m)

Diluted EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

06/21

192.2

30.2

21.0

6.6

0.0

8.0

4.9

06/22

232.4

16.0

19.3

3.4

0.0

15.5

6.0

06/23e

244.1

7.3

1.4

1.5

0.0

34.3

6.8

06/24e

273.9

12.5

12.0

2.6

0.0

19.9

5.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **NPATA = net profit after tax, excluding acquisition-related costs.

Growth cap extended for European GPR

EML has announced that it has had further clarification from the Central Bank of Ireland (CBI) relating to the growth cap applied to its Irish subsidiary, PFS Card Services (Ireland) Limited (PCSIL). This cap was originally put in place to last until the end of CY22. When EML reported in July that it was required to undertake more comprehensive remediation work to satisfy the regulator, it noted that third-party assessment of this work would shift into CY23 rather than the originally targeted deadline of end June 2022. The CBI has decided that PCSIL will be limited to growth of 10% above the annualised baseline volumes between January and September 2022, with this restriction applying to PCSIL total payment volumes for a further period of 12 months to the end of CY23. The restriction may be lifted sooner if the remediation programme is completed and independently verified before December 2023. This cap only applies to GPR volumes in Europe (ex-UK).

Forecasts revised to reflect growth cap

The extended growth cap in Europe combined with the restriction on new business in the UK (both for GPR only) has prompted us to revise down our revenue forecasts for FY23 and FY24. Combined with higher overheads to deal with compliance issues, this reduces our FY23 EBITDA by 28% and FY24 by 25%. EML is due to present the outcome of its strategic review at its AGM on 25 November at which point it is also likely to provide guidance for FY23.

Valuation: Regulatory resolution key to upside

EML is trading at a material discount to global payment processor peers on all metrics and at a discount to prepaid card peers on an EV/sales and EV/EBITDA basis. Repeated downgrades have reduced confidence in EML’s outlook. Factors that could drive a return to an upgrade cycle and a re-rating of the stock include lifting of the growth constraints on the European business, clawback of the costs of the Sentenial fraud and the outcome of the strategic review.

Changes to forecasts

Exhibit 1: Changes to forecasts

FY23e

FY23e

FY24e

FY24e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

A$m

256.7

244.1

-4.9%

5.1%

287.8

273.9

-4.9%

12.2%

Gross profit

A$m

174.3

166.7

-4.3%

5.6%

196.5

188.1

-4.3%

12.8%

Gross margin

67.9%

68.3%

0.4%

0.4%

68.3%

68.7%

0.4%

0.4%

EBITDA

A$m

42.1

30.4

-27.7%

-11.3%

52.6

39.3

-25.2%

29.3%

EBITDA margin

16.4%

12.5%

-3.9%

-2.3%

18.3%

14.4%

-3.9%

1.9%

Normalised operating profit

A$m

22.7

11.0

-51.5%

-40.2%

29.5

16.3

-45.0%

47.9%

Normalised operating margin

8.8%

4.5%

-4.3%

-3.4%

10.3%

5.9%

-4.3%

1.4%

Reported operating profit

A$m

-7.8

-19.5

148.9%

-N/A

7.0

-6.2

N/A

-68.0%

Reported operating margin

-3.1%

-8.0%

-4.9%

-8.1%

2.4%

-2.3%

-4.7%

5.7%

Normalised PBT

A$m

18.9

7.3

-61.7%

-54.6%

25.8

12.5

-51.5%

72.6%

Reported PBT

A$m

(11.6)

(23.2)

100.9%

6736.9%

3.3

(10.0)

N/A

-57.1%

Normalised net income

A$m

15.1

5.8

-61.7%

-54.6%

20.6

10.0

-51.5%

72.6%

NPATA

A$m

10.7

1.4

-86.9%

-92.7%

22.6

12.0

-46.9%

755.9%

Reported net income

A$m

(9.3)

(18.6)

100.9%

287.3%

2.6

(8.0)

N/A

-57.1%

Normalised basic EPS

A$

0.04

0.02

-61.7%

-55.0%

0.06

0.03

-51.5%

72.6%

Normalised diluted EPS

A$

0.04

0.02

-61.7%

-55.0%

0.05

0.03

-51.5%

72.6%

Reported basic EPS

A$

-0.02

-0.05

100.9%

284.5%

0.01

-0.02

N/A

-57.1%

NPATA/share

A$

0.03

0.00

-86.9%

-92.8%

0.06

0.03

-46.9%

755.9%

Dividend per share

A$

0.00

0.00

N/A

N/A

0.00

0.00

N/A

N/A

Net debt/(cash)

A$m

(21.2)

(13.3)

-37.3%

-237.1%

(11.6)

6.7

-157.4%

-150%

GDV

A$bn

103.4

102.3

-1.1%

27.5%

110.2

108.9

-1.1%

6.5%

Yield

bp

25

24

-1

-5

26

25

-1

1

Divisional data

GDV

G&I

A$bn

1.5

1.5

0%

9%

1.6

1.6

0%

10%

GPR

A$bn

14.2

13.1

-8%

6%

15.6

14.4

-8%

10%

Digital Payments

A$bn

87.8

87.8

0%

32%

92.9

92.9

0%

6%

Revenue

G&I

A$m

75.7

75.4

0%

10%

84.1

83.7

0%

11%

GPR

A$m

156.3

144.1

-8%

-3%

173.5

159.9

-8%

11%

Digital Payments

A$m

24.5

24.5

0%

32%

30.0

30.0

0%

23%

Gross profit

G&I

A$m

60.6

60.3

0%

67.3

67.0

0%

GPR

A$m

93.0

85.7

-8%

104.1

95.9

-8%

Digital Payments

A$m

20.5

20.5

0%

24.9

24.9

0%

Gross margin

G&I

80.0%

80.0%

80.0%

80.0%

GPR

59.5%

59.5%

60.0%

60.0%

Digital Payments

83.6%

83.6%

83.0%

83.0%

Source: Edison Investment Research

Exhibit 2: Financial summary

A$m

2018

2019

2020

2021

2022

2023e

2024e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

71.0

97.2

121.0

192.2

232.4

244.1

273.9

Cost of Sales

(17.7)

(24.2)

(32.9)

(63.8)

(74.6)

(77.4)

(85.8)

Gross Profit

53.3

73.0

88.1

128.4

157.8

166.7

188.1

EBITDA

 

 

21.0

29.7

32.5

42.2

34.3

30.4

39.3

Normalised operating profit

 

 

18.1

25.6

22.4

31.6

18.4

11.0

16.3

Amortisation of acquired intangibles

(7.2)

(7.5)

(11.1)

(20.2)

(16.5)

(20.0)

(20.0)

Exceptionals

(0.3)

(3.0)

(13.6)

(11.2)

1.4

(8.0)

0.0

Share-based payments

(5.0)

(4.2)

(6.1)

(5.0)

(3.0)

(2.5)

(2.5)

Reported operating profit

5.6

10.9

(8.5)

(4.8)

0.3

(19.5)

(6.2)

Net Interest

(0.1)

(0.0)

(0.7)

(1.4)

(2.4)

(3.7)

(3.7)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.5)

(1.8)

1.3

(17.1)

1.8

0.0

0.0

Profit Before Tax (norm)

 

 

17.9

25.6

21.6

30.2

16.0

7.3

12.5

Profit Before Tax (reported)

 

 

5.0

9.0

(7.9)

(23.3)

(0.3)

(23.2)

(10.0)

Reported tax

(2.8)

(0.6)

0.7

(5.4)

(4.5)

4.6

2.0

Profit After Tax (norm)

14.4

20.5

17.2

24.1

12.8

5.8

10.0

Profit After Tax (reported)

2.2

8.5

(7.1)

(28.7)

(4.8)

(18.6)

(8.0)

Minority interests

0.0

(0.2)

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

14.4

20.3

17.2

24.1

12.8

5.8

10.0

Net income (reported)

2.2

8.3

(7.1)

(28.7)

(4.8)

(18.6)

(8.0)

Basic ave. number of shares outstanding (m)

246

249

304

360

371

373

373

EPS - basic normalised (A$)

 

 

0.058

0.081

0.056

0.067

0.035

0.016

0.027

EPS - diluted normalised (A$)

 

 

0.057

0.078

0.055

0.066

0.034

0.015

0.026

EPS - basic reported (A$)

 

 

0.009

0.033

(0.023)

(0.080)

(0.013)

(0.050)

(0.021)

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

22.5

36.9

24.4

58.9

20.9

5.1

12.2

Gross Margin (%)

75.1

75.1

72.8

66.8

67.9

68.3

68.7

EBITDA Margin (%)

29.6

30.6

26.9

21.9

14.8

12.5

14.4

Normalised Operating Margin

25.4

26.4

18.5

16.4

7.9

4.5

5.9

BALANCE SHEET

Fixed Assets

 

 

108.0

162.9

872.1

685.3

827.3

943.6

973.7

Intangible Assets

65.8

104.6

371.7

350.1

448.5

430.9

412.1

Tangible Assets

3.5

5.4

14.6

11.2

12.7

9.7

11.5

Investments & other

38.7

53.0

485.8

323.9

366.1

503.1

550.1

Current Assets

 

 

131.6

313.8

1,008.6

1,603.5

1,855.1

1,963.7

2,109.5

Stocks

12.6

18.2

22.3

16.4

21.5

15.9

17.4

Debtors

8.9

14.4

21.7

22.0

35.8

33.6

37.6

Cash & cash equivalents

39.0

33.1

118.4

141.2

73.7

96.7

56.8

Other

71.1

248.2

846.2

1,424.0

1,724.1

1,817.4

1,997.7

Current Liabilities

 

 

(90.5)

(299.0)

(1,357.8)

(1,792.8)

(2,100.1)

(2,342.9)

(2,570.1)

Creditors

(21.2)

(33.9)

(47.5)

(62.9)

(65.7)

(69.6)

(76.4)

Tax and social security

0.0

(0.8)

(2.6)

(6.0)

(2.8)

(2.8)

(2.8)

Short term borrowings

0.0

(15.0)

0.0

(1.4)

(1.8)

(1.8)

(1.8)

Other

(69.3)

(249.4)

(1,307.7)

(1,722.5)

(2,029.8)

(2,268.7)

(2,489.1)

Long Term Liabilities

 

 

(19.3)

(33.5)

(82.6)

(81.1)

(145.2)

(143.3)

(97.6)

Long term borrowings

0.0

0.0

(35.8)

(36.9)

(81.6)

(81.6)

(61.6)

Other long term liabilities

(19.3)

(33.5)

(46.8)

(44.2)

(63.6)

(61.7)

(35.9)

Net Assets

 

 

129.8

144.2

440.2

414.9

437.1

421.0

415.5

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

129.8

144.2

440.2

414.9

437.1

421.0

415.5

CASH FLOW

Op Cash Flow before WC and tax

19.7

28.4

31.2

41.2

33.3

29.5

38.4

Working capital

(9.2)

2.0

3.6

31.7

(68.4)

10.2

(5.7)

Exceptional & other

(1.2)

(0.7)

(12.7)

(17.3)

0.4

(8.4)

0.0

Tax

(2.8)

(0.6)

0.7

(5.4)

(4.5)

4.6

2.0

Net operating cash flow

 

 

6.5

29.2

22.8

50.2

(39.2)

36.0

34.7

Capex

(5.3)

(5.8)

(11.0)

(12.6)

(14.1)

(17.9)

(20.1)

Acquisitions/disposals

(0.7)

(44.0)

(142.5)

(3.5)

(57.1)

10.6

(28.9)

Net interest

(0.1)

(0.0)

(0.7)

(1.4)

(2.4)

(3.7)

(3.7)

Equity financing

0.0

0.4

240.8

0.6

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.6)

(0.4)

(7.0)

(11.0)

(1.9)

(1.9)

(1.9)

Net Cash Flow

(0.2)

(20.6)

102.3

22.2

(114.6)

23.1

(20.0)

Opening net debt/(cash)

 

 

(39.9)

(39.0)

(18.1)

(82.5)

(103.0)

9.7

(13.3)

FX

(0.6)

(0.3)

(2.0)

0.6

(1.1)

0.0

0.0

Other non-cash movements

0.0

0.0

(35.8)

(2.4)

3.0

(0.0)

0.0

Closing net debt/(cash)

 

 

(39.0)

(18.1)

(82.5)

(103.0)

9.7

(13.3)

6.7

Source: EML Payments, Edison Investment Research

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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