EML Payments — Irish regulator raises issues

EML Payments (ASX: EML)

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Research: TMT

EML Payments — Irish regulator raises issues

EML Payments has announced that the Irish regulator is investigating certain PFS activities that fall under its remit, as it has concerns relating to anti-money laundering and counter terrorism financing risk management and controls. This relates to business that made up just over a quarter of CY Q121 revenue. EML expects to provide further information to the regulator by 27 May. Aside from that issue for which the outcome is as yet unknown, EML is trading in line with management’s guidance for FY21.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

EML Payments

Irish regulator raises issues

Trading update

Software & comp services

20 May 2021

Price

A$2.91

Market cap

A$1,053m

£0.55:US$0.77:€0.63:A$

Net cash (A$m) at end H121

100.3

Shares in issue

361.8m

Free float

93%

Code

EML

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(48.7)

(44.9)

(14.9)

Rel (local)

(47.6)

(45.7)

(32.8)

52-week high/low

A$5.75

A$2.69

Business description

EML Payments is a payment solutions company specialising in the prepaid stored value market, with mobile, physical and virtual card offerings. It provides solutions for payouts, gifts, incentives, rewards and supplier payments, managing thousands of programmes across 28 countries in Europe, North America and Australia.

Next events

FY21 results

August 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EML Payments is a research client of Edison Investment Research Limited

EML Payments has announced that the Irish regulator is investigating certain PFS activities that fall under its remit, as it has concerns relating to anti-money laundering and counter terrorism financing risk management and controls. This relates to business that made up just over a quarter of CY Q121 revenue. EML expects to provide further information to the regulator by 27 May. Aside from that issue for which the outcome is as yet unknown, EML is trading in line with management’s guidance for FY21.

Year end

Revenue (A$m)

PBT*
(A$m)

NPATA** (A$m)

Dil. EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

06/19

97.2

25.6

20.6

7.8

0.0

37.2

35.6

06/20

121.0

21.6

24.0

5.5

0.0

52.6

32.5

06/21e

182.2

34.7

30.8

7.5

0.0

38.7

21.1

06/22e

249.4

50.7

42.6

10.7

0.0

27.3

14.9

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

Irish regulator highlights AML/CTF issues

EML reported that the Central Bank of Ireland (CBI), the Irish regulator, has written to an Irish subsidiary raising significant regulatory concerns relating to anti-money laundering (AML) and counter terrorism financing (CFT) risk and control frameworks and governance. The subsidiary is PFS Card Services (Ireland) Limited (PCSIL), the entity through which PFS’s European (ex-UK) business has operated since 19 December 2020. The majority of this business operated through PFS’s UK subsidiary prior to Brexit and fell under the jurisdiction of the FCA. EML estimates that from 1 January to 31 March 2021, 27% of group revenue derived from programmes operated through PCSIL. The CBI has asked PCSIL to provide submissions in relation to the concerns, which PCSIL intends to do by 27 May.

Several possible outcomes

CBI has stated that it is minded to issue directions pursuant to section 45 of the Central Bank (Supervision and Enforcement) Act 2013. This could result in a fine being levied on EML. Other possible outcomes for EML could range from being required to remedy any breaches through to losing its licence to operate. As the outcome is as yet unknown, the company reiterated that trading so far this year is on track to meet previous guidance excluding the impact of this issue. We maintain our estimates pending further clarity on the situation.

Valuation: Stock has nearly halved

The stock is down 43% since the news was announced and is now trading at levels (excluding the COVID dip in March 2020) last seen in August 2019, before the PFS deal was announced. Without knowing the outcome of the investigation, it is not possible to estimate the impact on our forecasts, making comparisons with peers less meaningful.

Exhibit 1: Financial summary

A$m

2017

2018

2019

2020

2021e

2022e

2023e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

58.0

71.0

97.2

121.0

182.2

249.4

298.9

Cost of Sales

(13.7)

(17.7)

(24.2)

(32.9)

(56.8)

(72.5)

(83.5)

Gross Profit

44.2

53.3

73.0

88.1

125.4

176.9

215.4

EBITDA

 

 

14.5

21.0

29.7

32.5

50.1

71.2

98.0

Normalised operating profit

 

 

11.9

18.1

25.6

22.4

36.1

53.6

75.5

Amortisation of acquired intangibles

(8.9)

(7.2)

(7.5)

(10.6)

(18.5)

(14.0)

(14.0)

Exceptionals

0.2

(0.3)

(3.0)

(11.2)

(8.6)

0.0

0.0

Share-based payments

(5.3)

(5.0)

(4.2)

(6.1)

(6.3)

(2.5)

(2.5)

Reported operating profit

(2.1)

5.6

10.9

(5.6)

2.7

37.1

59.0

Net Interest

0.0

(0.1)

(0.0)

(0.7)

(1.4)

(3.0)

(3.0)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

(0.5)

(1.8)

(0.2)

(32.4)

(1.5)

(1.0)

Profit Before Tax (norm)

 

 

11.9

17.9

25.6

21.6

34.7

50.7

72.5

Profit Before Tax (reported)

 

 

(2.1)

5.0

9.0

(6.6)

(31.1)

32.7

55.0

Reported tax

2.1

(2.8)

(0.6)

0.7

6.2

(6.5)

(11.0)

Profit After Tax (norm)

8.9

14.4

20.5

17.3

27.8

40.5

58.0

Profit After Tax (reported)

0.0

2.2

8.5

(5.9)

(24.9)

26.1

44.0

Minority interests

0.0

0.0

(0.2)

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)

8.9

14.4

20.3

17.3

27.8

40.5

58.0

Net income (reported)

0.0

2.2

8.3

(5.9)

(24.9)

26.1

44.0

Basic ave. number of shares outstanding (m)

245

246

249

304

361

372

372

EPS - basic normalised (A$)

 

 

0.036

0.058

0.081

0.057

0.077

0.109

0.156

EPS - diluted normalised (A$)

 

 

0.036

0.057

0.078

0.055

0.075

0.107

0.153

EPS - basic reported (A$)

 

 

0.000

0.009

0.033

(0.019)

(0.069)

0.070

0.118

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

148.6

22.5

36.9

24.4

50.6

36.9

19.8

Gross Margin (%)

76.3

75.1

75.1

72.8

68.8

70.9

72.1

EBITDA Margin (%)

25.1

29.6

30.6

26.9

27.5

28.6

32.8

Normalised Operating Margin

20.5

25.4

26.4

18.5

19.8

21.5

25.3

BALANCE SHEET

Fixed Assets

 

 

90.6

108.0

162.9

905.2

1,076.3

1,159.3

1,220.2

Intangible Assets

60.1

65.8

104.6

404.7

554.6

541.8

527.3

Tangible Assets

2.8

3.5

5.4

14.6

12.0

9.6

7.1

Investments & other

27.6

38.7

53.0

485.8

509.6

607.9

685.9

Current Assets

 

 

96.9

131.6

313.8

1,001.1

1,240.7

1,489.0

1,700.7

Stocks

10.3

12.6

18.2

22.3

20.9

23.0

25.3

Debtors

6.3

8.9

14.4

21.7

32.3

43.9

52.5

Cash & cash equivalents

39.9

39.0

33.1

118.4

113.9

121.3

142.5

Other

40.4

71.1

248.2

838.7

1,073.6

1,300.8

1,480.5

Current Liabilities

 

 

(62.8)

(90.5)

(299.0)

(1,326.3)

(1,630.8)

(1,973.7)

(2,220.5)

Creditors

(23.8)

(21.2)

(33.9)

(47.5)

(62.5)

(80.9)

(91.1)

Tax and social security

(0.0)

0.0

(0.8)

(0.2)

(0.2)

(0.2)

(0.2)

Short term borrowings

0.0

0.0

(15.0)

0.0

0.0

0.0

0.0

Other

(39.0)

(69.3)

(249.4)

(1,278.6)

(1,568.1)

(1,892.6)

(2,129.1)

Long Term Liabilities

 

 

(4.2)

(19.3)

(33.5)

(139.0)

(218.4)

(178.1)

(157.4)

Long term borrowings

0.0

0.0

0.0

(35.8)

(66.8)

(66.8)

(66.8)

Other long-term liabilities

(4.2)

(19.3)

(33.5)

(103.2)

(151.5)

(111.2)

(90.6)

Net Assets

 

 

120.6

129.8

144.2

441.0

467.8

496.5

543.0

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

120.6

129.8

144.2

441.0

467.8

496.5

543.0

CASH FLOW

Op Cash Flow before WC and tax

13.1

19.7

28.4

31.2

48.2

69.4

96.2

Working capital

4.9

(9.2)

2.0

3.6

6.5

3.8

(1.6)

Exceptional & other

(0.8)

(1.2)

(0.7)

(12.7)

(6.5)

0.0

0.0

Tax

2.1

(2.8)

(0.6)

0.7

6.2

(6.5)

(11.0)

Net operating cash flow

 

 

19.3

6.5

29.2

22.8

54.4

66.7

83.6

Capex

(2.9)

(5.3)

(5.8)

(11.0)

(13.1)

(14.6)

(17.6)

Acquisitions/disposals

0.0

(0.7)

(44.0)

(142.5)

(73.6)

(40.0)

(40.0)

Net interest

0.0

(0.1)

(0.0)

(0.7)

(1.4)

(3.0)

(3.0)

Equity financing

0.2

0.0

0.4

240.8

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(3.6)

(0.6)

(0.4)

(7.0)

(1.8)

(1.8)

(1.8)

Net Cash Flow

13.0

(0.2)

(20.6)

102.3

(35.5)

7.4

21.2

Opening net debt/(cash)

 

 

(26.9)

(39.9)

(39.0)

(18.1)

(82.5)

(47.0)

(54.4)

FX

(0.0)

(0.6)

(0.3)

(2.0)

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

(35.8)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(39.9)

(39.0)

(18.1)

(82.5)

(47.0)

(54.4)

(75.6)

Source: EML Payments, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by EML Payments and prepared and issued by Edison, in consideration of a fee payable by EML Payments. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

General disclaimer and copyright

This report has been commissioned by EML Payments and prepared and issued by Edison, in consideration of a fee payable by EML Payments. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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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