EML Payments — Prepaid card contract win in Spain

EML Payments (ASX: EML)

Last close As at 20/06/2024

AUD1.00

0.07 (6.99%)

Market capitalisation

AUD374m

More on this equity

Research: TMT

EML Payments — Prepaid card contract win in Spain

EML Payments (EML) has announced another government stimulus contract win, this time supporting Correos in Spain with the government’s plan to boost the cultural sector. While positive for the General Purpose Reloadable (GPR) business, the company noted that this contract would use much of the growth cap imposed by the Central Bank of Ireland (CBI) on EU-based business. We have taken the opportunity to revisit our forecasts, reducing the weighting of establishment and breakage/dormant account fees and increasing the weighting of volume-based revenue. This results in cuts to our FY23 and FY24 revenue, EBITDA and NPATA forecasts.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

EML Payments

Prepaid card contract win in Spain

Contract announcement

Software and comp services

7 July 2022

Price

A$1.28

Market cap

A$478m

Net cash (A$m) at end H122

0.2

Shares in issue

373.4m

Free float

93%

Code

EML

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

(51.0)

(60.9)

Rel (local)

13.6

(43.8)

(56.6)

52-week high/low

A$4.23

A$1.23

Business description

EML Payments is a payment solutions company managing thousands of programmes across 27 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

FY22 results

August

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EML Payments is a research client of Edison Investment Research Limited

EML Payments (EML) has announced another government stimulus contract win, this time supporting Correos in Spain with the government’s plan to boost the cultural sector. While positive for the General Purpose Reloadable (GPR) business, the company noted that this contract would use much of the growth cap imposed by the Central Bank of Ireland (CBI) on EU-based business. We have taken the opportunity to revisit our forecasts, reducing the weighting of establishment and breakage/dormant account fees and increasing the weighting of volume-based revenue. This results in cuts to our FY23 and FY24 revenue, EBITDA and NPATA forecasts.

Year end

Revenue (A$m)

PBT*
(A$m)

NPATA** (A$m)

Diluted EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

06/20

121.0

21.6

21.0

5.5

0

23.3

13.4

06/21

192.2

30.2

21.0

6.6

0

19.5

10.3

06/22e

229.1

20.1

15.5

4.3

0

30.0

11.7

06/23e

255.5

36.1

31.4

7.6

0

16.9

7.5

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.

New contract with Correos in Spain

EML announced a new contract with existing customer Correos, Spain’s national post office network, to support the government’s Bono Cultural Joven 2022 (Youth Cultural Bonus) programme. The government, via Correos, will load c 500k virtual cards with €400 per card and issue them to eligible 18 year olds, to be spent on cultural products and activities such as live music, films, museums, festivals, etc. The gross debit volume (GDV) is expected to be €210m/A$320m, which will contribute to FY23 revenue and EBITDA.

Revising estimates to reflect revenue mix

The company expects this programme to use a material proportion of the growth cap imposed by the CBI; the cap remains in place until December 2022 unless removed or amended by CBI before then. Reflecting lower establishment fees and a normalisation of dormant account fees in the GPR division and lower levels of breakage in Gift & Incentive (G&I), we have revised down our revenue, EBITDA and net profit after tax (NPATA) forecasts for FY23 and FY24. Our FY22 forecasts are unchanged.

Valuation: CBI resolution the key trigger

On FY23 estimates (when we expect more normalised EBITDA profitability), EML is trading at a 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. The share price was already depressed because of the CBI issue and has declined a further 53% since the Q3 update. If the regulatory issue is successfully resolved without imposing material growth constraints on the European business and the delayed operational improvement programmes start to benefit margins, a return to an upgrade cycle should improve confidence and drive a re-rating of the stock.

Changes to forecasts

The recent contract win with Correos highlighted that growth within the GPR division will be constrained in the short term by the cap put in place by the CBI. This is likely to limit the number of new programmes that can be launched and result in establishment fees making up a lower proportion of revenue. We have therefore reduced the yield for the division for FY23 and FY24. In the G&I division, we have also reduced our yield forecasts to reflect lower levels of breakage in FY23 and FY24 compared to FY21 and FY22. Our GDV and cost estimates for FY23 and FY24 are unchanged. This results in a reduction in our EBITDA and NPATA forecasts for both years.

As a reminder, the company expected its CBI remediation plan to be complete by the end of June, which is then to be followed by an independent review. The growth cap imposed by the CBI is in place until the end of December, subject to any decision to amend or remove it.

Exhibit 1: Changes to estimates

FY22e

FY22e

FY23e

FY23e

FY24e

FY24e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

A$m

229.1

229.1

0.0%

19.2%

268.4

255.5

-4.8%

11.5%

305.4

294.2

-3.7%

15.2%

Gross profit

A$m

158.2

158.2

0.0%

23.2%

189.4

180.0

-5.0%

13.8%

218.9

210.4

-3.9%

16.9%

Gross margin

69.0%

69.0%

0.0%

2.2%

70.6%

70.4%

-0.1%

1.4%

71.7%

71.5%

-0.2%

1.1%

EBITDA

A$m

37.1

37.1

0.0%

-12.0%

67.7

58.3

-13.9%

57.1%

86.9

78.4

-9.8%

34.4%

EBITDA margin

16.2%

16.2%

0.0%

-5.7%

25.2%

22.8%

-2.4%

6.6%

28.4%

26.6%

-1.8%

3.8%

Add back CBI costs

A$m

15.0

15.0

0.0

0.0

0.0

0.0

Underlying EBITDA

A$m

52.1

52.1

0.0%

-2.6%

67.7

58.3

-13.9%

11.9%

86.9

78.4

-9.8%

34.4%

Underlying EBITDA margin

22.8%

22.8%

0.0%

-5.1%

25.2%

22.8%

-2.4%

0.1%

28.4%

26.6%

-1.8%

3.8%

Normalised operating profit

A$m

23.2

23.2

0.0%

-26.4%

49.2

39.8

-19.1%

71.2%

64.7

56.3

-13.1%

41.4%

Normalised operating margin

10.1%

10.1%

0.0%

-6.3%

18.3%

15.6%

-2.8%

5.4%

21.2%

19.1%

-2.1%

3.6%

Reported operating profit

A$m

-7.5

-7.5

0.0%

55.3%

26.7

17.3

-35.2%

-331.5%

42.2

33.8

-20.1%

95.4%

Reported operating margin

-3.3%

-3.3%

0.0%

-0.8%

9.9%

6.8%

-3.2%

10.0%

13.8%

11.5%

-2.4%

4.7%

Normalised PBT

A$m

20.1

20.1

0.0%

-33.4%

45.5

36.1

-20.7%

79.5%

61.0

52.5

-13.9%

45.7%

Reported PBT

A$m

-14.9

-14.9

0.0%

-36.2%

20.1

10.7

-46.9%

-171.7%

36.4

27.9

-23.3%

161.7%

Normalised net income

A$m

16.1

16.1

0.0%

-33.4%

36.4

28.8

-20.7%

79.5%

48.8

42.0

-13.9%

45.7%

NPATA

A$m

15.5

15.5

0.0%

-26.2%

38.9

31.4

-19.3%

102.5%

51.2

44.5

-13.2%

41.5%

Add back CBI costs

A$m

12.0

12.0

0.0

0.0

0.0

0.0

Underlying NPATA

A$m

27.5

27.5

0.0%

-15.0%

38.9

31.4

-19.3%

14.2%

51.2

44.5

-13.2%

41.5%

Reported net income

A$m

-14.9

-14.9

0.0%

-48.2%

16.1

8.5

-46.9%

-157.4%

29.1

22.3

-23.3%

161.7%

Normalised basic EPS

A$

0.04

0.04

0.0%

-35.2%

0.10

0.08

-20.7%

78.1%

0.13

0.11

-13.9%

45.7%

Normalised diluted EPS

A$

0.04

0.043

0.0%

-35.2%

0.10

0.08

-20.7%

78.1%

0.13

0.11

-13.9%

45.7%

Reported basic EPS

A$

-0.04

-0.04

0.0%

-49.6%

0.04

0.02

-46.9%

-156.9%

0.08

0.06

-23.3%

161.7%

NPATA/share

A$

0.04

0.04

0.0%

-28.2%

0.10

0.08

-19.3%

101.0%

0.13

0.12

-13.2%

41.5%

Dividend per share

A$

0.00

0.00

N/A

N/A

0.00

0.00

N/A

N/A

0.00

0.00

N/A

N/A

Net debt/(cash)

A$m

(42.6)

(42.6)

0.0%

-58.6%

(62.0)

(54.6)

-11.9%

28.1%

(71.3)

(57.3)

-19.7%

4.9%

GDV

A$bn

80.6

80.6

0.0%

309.4%

106.6

106.6

0.0%

32.4%

120.6

120.6

0.0%

13.1%

Yield

bp

28

28

0

-70

25

24

-1

-4

25

24

-1

0

Source: Edison Investment Research


Exhibit 2: Financial summary

A$m

2018

2019

2020

2021

2022e

2023e

2024e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

71.0

97.2

121.0

192.2

229.1

255.5

294.2

Cost of Sales

(17.7)

(24.2)

(32.9)

(63.8)

(70.9)

(75.5)

(83.8)

Gross Profit

53.3

73.0

88.1

128.4

158.2

180.0

210.4

EBITDA

 

 

21.0

29.7

32.5

42.2

37.1

58.3

78.4

Normalised operating profit

 

 

18.1

25.6

22.4

31.6

23.2

39.8

56.3

Amortisation of acquired intangibles

(7.2)

(7.5)

(11.1)

(20.2)

(20.0)

(20.0)

(20.0)

Exceptionals

(0.3)

(3.0)

(13.6)

(11.2)

(4.7)

0.0

0.0

Share-based payments

(5.0)

(4.2)

(6.1)

(5.0)

(6.0)

(2.5)

(2.5)

Reported operating profit

5.6

10.9

(8.5)

(4.8)

(7.5)

17.3

33.8

Net Interest

(0.1)

(0.0)

(0.7)

(1.4)

(3.2)

(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)

(4.2)

(2.9)

(2.1)

Profit Before Tax (norm)

 

 

17.9

25.6

21.6

30.2

20.1

36.1

52.5

Profit Before Tax (reported)

 

 

5.0

9.0

(7.9)

(23.3)

(14.9)

10.7

27.9

Reported tax

(2.8)

(0.6)

0.7

(5.4)

0.0

(2.1)

(5.6)

Profit After Tax (norm)

14.4

20.5

17.2

24.1

16.1

28.8

42.0

Profit After Tax (reported)

2.2

8.5

(7.1)

(28.7)

(14.9)

8.5

22.3

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

16.1

28.8

42.0

Net income (reported)

2.2

8.3

(7.1)

(28.7)

(14.9)

8.5

22.3

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

0.043

0.077

0.11

EPS - diluted normalised (A$)

 

 

0.057

0.078

0.055

0.066

0.043

0.076

0.11

EPS - basic reported (A$)

 

 

0.009

0.033

(0.023)

(0.080)

(0.040)

0.023

0.06

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

19.2

11.5

15.2

Gross Margin (%)

75.1

75.1

72.8

66.8

69.0

70.4

71.5

EBITDA Margin (%)

29.6

30.6

26.9

21.9

16.2

22.8

26.6

Normalised Operating Margin

25.4

26.4

18.5

16.4

10.1

15.6

19.1

BALANCE SHEET

Fixed Assets

 

 

108.0

162.9

872.1

685.3

943.8

980.0

1,010.8

Intangible Assets

65.8

104.6

371.7

350.1

461.7

443.9

425.0

Tangible Assets

3.5

5.4

14.6

11.2

7.7

3.9

4.9

Investments & other

38.7

53.0

485.8

323.9

474.5

532.2

580.8

Current Assets

 

 

131.6

313.8

1,008.6

1,603.5

1,854.5

2,097.9

2,228.2

Stocks

12.6

18.2

22.3

16.4

20.0

21.9

24.0

Debtors

8.9

14.4

21.7

22.0

28.3

31.6

36.4

Cash & cash equivalents

39.0

33.1

118.4

141.2

129.1

141.0

75.5

Other

71.1

248.2

846.2

1,424.0

1,677.1

1,903.4

2,092.3

Current Liabilities

 

 

(90.5)

(299.0)

(1,357.8)

(1,792.8)

(2,188.4)

(2,464.1)

(2,694.1)

Creditors

(21.2)

(33.9)

(47.5)

(62.9)

(79.2)

(80.2)

(87.9)

Tax and social security

0.0

(0.8)

(2.6)

(6.0)

(6.0)

(6.0)

(6.0)

Short term borrowings

0.0

(15.0)

0.0

(1.4)

(1.4)

(1.4)

(1.4)

Other

(69.3)

(249.4)

(1,307.7)

(1,722.5)

(2,101.9)

(2,376.5)

(2,598.8)

Long Term Liabilities

 

 

(19.3)

(33.5)

(82.6)

(81.1)

(149.0)

(141.9)

(48.2)

Long term borrowings

0.0

0.0

(35.8)

(36.9)

(85.0)

(85.0)

(16.9)

Other long term liabilities

(19.3)

(33.5)

(46.8)

(44.2)

(64.0)

(56.9)

(31.4)

Net Assets

 

 

129.8

144.2

440.2

414.9

460.9

471.9

496.7

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

460.9

471.9

496.7

CASH FLOW

Op Cash Flow before WC and tax

19.7

28.4

31.2

41.2

37.1

58.3

78.4

Working capital

(9.2)

2.0

3.6

31.7

9.6

(14.2)

(5.7)

Exceptional & other

(1.2)

(0.7)

(12.7)

(17.3)

(32.9)

0.0

0.0

Tax

(2.8)

(0.6)

0.7

(5.4)

0.0

(2.1)

(5.6)

Net operating cash flow

 

 

6.5

29.2

22.8

50.2

13.9

42.0

67.1

Capex

(5.3)

(5.8)

(11.0)

(12.6)

(14.0)

(17.0)

(19.3)

Acquisitions/disposals

(0.7)

(44.0)

(142.5)

(3.5)

(55.9)

(8.0)

(40.3)

Net interest

(0.1)

(0.0)

(0.7)

(1.4)

(3.2)

(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)

(1.2)

(1.2)

(1.2)

Net Cash Flow

(0.2)

(20.6)

102.3

22.2

(60.3)

12.0

2.7

Opening net debt/(cash)

 

 

(39.9)

(39.0)

(18.1)

(82.5)

(103.0)

(42.6)

(54.6)

FX

(0.6)

(0.3)

(2.0)

0.6

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

(35.8)

(2.4)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(39.0)

(18.1)

(82.5)

(103.0)

(42.6)

(54.6)

(57.3)

Source: EML Payments, Edison Investment Research

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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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Australia

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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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