EML Payments — Strategic review for sustainable growth

EML Payments (ASX: EML)

Last close As at 24/02/2024

AUD0.91

−0.04 (−4.21%)

Market capitalisation

AUD342m

More on this equity

Research: TMT

EML Payments — Strategic review for sustainable growth

After a tough year dealing with the recovery from COVID and the European regulatory issue, EML Payments reported FY22 revenue growth of 21% (17% organic), underlying EBITDA down 4% and underlying NPATA down 1% y-o-y. The recently appointed CEO has launched a strategic review, with the outcome expected in November. While no quantitative guidance was given for FY23, we have reduced our EBITDA and NPATA forecasts for FY23/24 to reflect higher inflation, the ongoing costs of strengthening the risk and compliance functions and lower service-related fees.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

EML Payments

Strategic review for sustainable growth

FY22 results

Software and comp services

9 September 2022

Price

A$1.00

Market cap

A$374m

Net debt (A$m) at end FY22

9.7

Shares in issue

373.7m

Free float

93%

Code

EML

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(17.7)

(29.9)

(76.4)

Rel (local)

(15.7)

(27.3)

(74)

52-week high/low

A$3.98

A$0.86

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

November 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EML Payments is a research client of Edison Investment Research Limited

After a tough year dealing with the recovery from COVID and the European regulatory issue, EML Payments reported FY22 revenue growth of 21% (17% organic), underlying EBITDA down 4% and underlying NPATA down 1% y-o-y. The recently appointed CEO has launched a strategic review, with the outcome expected in November. While no quantitative guidance was given for FY23, we have reduced our EBITDA and NPATA forecasts for FY23/24 to reflect higher inflation, the ongoing costs of strengthening the risk and compliance functions and lower service-related fees.

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

15.2

9.1

06/22

232.4

16.0

19.3

3.4

0.0

29.4

11.2

06/23e

256.7

18.9

10.7

4.0

0.0

25.0

9.1

06/24e

287.8

25.8

22.6

5.4

0.0

18.4

7.3

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.

FY22: Revenue growth offset by higher overheads

EML Payments reported FY22 gross debit volume and revenue within the guidance ranges, while gross margin of 68% was slightly below the guided 69%. Combined with overheads at the top end of EML’s expected range, underlying EBITDA of A$51.2m was just below guidance of A$52–55m and our A$52.1m forecast. Conversely, underlying NPATA of A$32.1m was ahead of guidance of A$27–30m and our A$27.5m forecast. With working capital outflows higher than forecast, EML closed the year with net debt of A$9.7m, versus our A$42.6m net cash forecast. While EML remains focused on completing the remediation plan for the Central Bank of Ireland regulatory issue, operational improvement plans are delayed. Offsetting this, the rising interest rate environment should benefit revenues.

Strategic review underway; A$20m share buyback

The new CEO, Emma Shand, has launched a strategic review focused on business growth strategy, operational efficiency and enhanced compliance and regulatory processes. Initial changes include combining the North American and European Gift & Incentive (G&I) businesses and separating the global risk and compliance functions. EML also announced a A$20m share buyback, partially funded by the sale of the company’s FinLab investment in Interchecks for A$10.6m.

Valuation: Regulatory resolution key to upside

On FY23 estimates, 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 the outlook for EML. Factors that could drive a return to an upgrade cycle and a re-rating of the stock include the resolution of the regulatory issue without imposing material growth constraints on the European business, clawback of the costs of the Sentenial fraud and the outcome of the strategic review.

Review of FY22 results

Exhibit 1: FY22 results highlights

FY21a

FY22e

FY22a

Change

y-o-y

Revenues

A$m

192.2

229.1

232.4

1.4%

20.9%

Gross profit

A$m

128.4

158.2

157.8

-0.2%

22.9%

Gross margin

66.8%

69.0%

67.9%

-1.1%

1.1%

EBITDA

A$m

42.2

37.1

34.3

-7.6%

-18.7%

EBITDA margin

21.9%

16.2%

14.8%

-1.4%

-7.2%

Add back CBI costs

A$m

11.4

15.0

16.9

12.6%

N/A

Underlying EBITDA

A$m

53.5

52.1

51.2

-1.9%

-4.4%

Underlying EBITDA margin

27.8%

22.8%

22.0%

-0.7%

-5.8%

Normalised operating profit

A$m

31.6

23.2

18.4

-20.9%

-41.8%

Normalised operating margin

16.4%

10.1%

7.9%

-2.2%

-8.5%

Reported operating profit

A$m

(4.8)

(7.5)

0.3

N/A

N/A

Reported operating margin

-2.5%

-3.3%

0.1%

3.4%

2.6%

Normalised PBT

A$m

30.2

20.1

16.0

-20.4%

-47.0%

Reported PBT

A$m

(23.3)

(14.9)

(0.3)

-97.7%

-98.5%

Normalised net income

A$m

24.1

16.1

12.8

-20.4%

-47.0%

NPATA

A$m

21.0

15.5

19.3

24.7%

-8.0%

Add back CBI costs

A$m

11.4

12.0

12.7

5.8%

N/A

Underlying NPATA

A$m

32.4

27.5

32.1

16.5%

-1.0%

Reported net income

A$m

(28.7)

(14.9)

(4.8)

-67.7%

-83.3%

Normalised basic EPS

A$

0.07

0.04

0.03

-20.5%

-48.5%

Normalised diluted EPS

A$

0.07

0.04

0.03

-20.3%

-48.4%

Reported basic EPS

A$

(0.08)

(0.04)

(0.01)

-67.7%

-83.7%

NPATA/share

A$

0.06

0.04

0.05

24.8%

-10.4%

Dividend per share

A$

0.00

0.00

0.00

N/A

N/A

Net debt/(cash)

A$m

(103.0)

(42.6)

9.7

N/A

N/A

GDV

A$bn

19.7

80.6

80.2

-0.4%

307.8%

Yield

bp

99

28

29

1

-70

Source: EML Payments, Edison Investment Research

EML reported GDV of A$80.2bn, within the guidance range of A$79–84bn. This equated to growth of 308% y-o-y or 19% when excluding the contribution from the Sentenial acquisition (completed on 1 October 2021). Revenue of A$234.1m was at the upper end of the guidance range of A$225–235m, with 21% growth y-o-y and 17% growth on an organic basis. On a reported basis, revenue was A$232.4m after A$1.7m of bond amortisation.

Gross profit of A$157.8m (+23% y-o-y) equated to a gross margin of 67.9%, marginally below the guidance of 69% but up 1pp y-o-y.

Underlying EBITDA of A$51.2m was below the guidance range of A$52–55m and our A$52.1m forecast. Underlying EBITDA excludes A$16.9m in costs related to the Central Bank of Ireland (CBI) issue (we had forecast these costs to be A$15m). Overheads of A$108.4m were at the upper end of the expected A$106–109m range reflecting investment in risk and compliance in the European business.

Normalised operating profit of A$18.4m was below our A$23.2m forecast, reflecting lower underlying EBITDA and higher than expected amortisation. Reported operating profit of A$0.3m was well ahead of our forecast for a A$7.5m loss. Items included in reported operating profit include share-based payments of A$3.0m (vs our A$6.0m forecast), amortisation of acquired intangibles of A$16.5m (vs our A$20.0m forecast), an FX gain of A$6.1m (vs our $0.2m loss forecast) and other one-off items totalling A$1.2m (vs our A$2.0m forecast).

The outstanding contingent consideration owing to the PFS vendors of A$15.2m at the end of H122 was written down to zero during H222 – this resulted in a fair value gain of A$13.6m and removed the A$1.6m unwind of the discounted value that we had forecast. The company also wrote the value of its stake in Hydrogen down to zero, resulting in a fair value loss of A$7.3m.

Underlying NPATA of A$32.1m was well ahead of the guidance range of A$27–30m and our A$27.5m forecast. Underlying NPATA excludes the post-tax, CBI-related costs totalling A$12.7m (our forecast A$12.0m). The main reason for the outperformance was the lower-than-expected reported net loss of A$4.8m (the starting point for the NPATA calculation).

The company closed the year with net debt of A$9.7m (gross cash of A$73.7m, syndicated debt facility drawdown of A$45.8m and A$37.6m in interest-bearing deferred consideration). This was below our forecast for net cash of A$42.6m, mainly due to higher than forecast working capital requirements. Around a third of this was due to the account management fee (AMF) recognition within contract assets, which will be received as cash in the coming years. The remainder resulted from higher trade debtor days and a lower level of trade payables than expected. Other than the working capital movements described above, the main items reducing net cash over the year included payment of A$57m for Sentenial, the A$28m injected into segregated funds to cover accelerated recognition of breakage in PFS prior to acquisition (see page 4 of Moving forward for further explanation) and A$14m in capex. We note that as with the account management fees described above, the A$28m injected into segregated funds should be received in cash over time.

Divisional performance

Exhibit 2: Divisional performance

FY22a

FY22e

diff

FY21a

y-o-y

GDV (A$m)

G&I

1.3

1.3

-1%

1.1

21%

GPR

12.4

12.1

2%

9.7

27%

Digital Payments

66.6

67.1

-1%

8.8

654%

Group GDV

80.2

80.6

0%

19.7

308%

Yield (bp)

G&I

510

575

-11%

635

(125)

GPR

120

111

8%

117

3

Digital Payments

3

3

3%

12

(9)

Group yield

29

28

3%

99

(70)

Revenue (A$m)

G&I

68.4

77.6

-12%

70.2

-3%

GPR

148.1

134.0

10%

113.6

30%

Digital Payments

17.6

17.2

2%

10.3

71%

Net interest contribution

0.0

0.3

-94%

0.1

Group revenue*

234.1

229.1

2%

194.2

21%

Source: EML Payments, Edison Investment Research. Note: *Before bond amortisation.

Gift and Incentive (G&I) – returning to normality

G&I revenue growth of -3% y-o-y reflected 21% growth in GDV offset by a lower yield of 510bp (FY21: 635bp). While volume growth benefited from higher footfall in shopping malls as lockdowns were lifted, the emergence of Omicron towards the end of CY21 dampened demand over the Christmas period. In FY21, the company reported A$11.1m in excess breakage revenue resulting from reduced gift card usage during COVID. Breakage returned to more normal levels in FY22 as shoppers returned to malls and, as breakage generates a 100% gross margin, this reduced gross margin by 1.4pp y-o-y to 79.8%.

General Purpose Reloadable (GPR) – growth despite challenges

GPR revenue grew 30% y-o-y, with GDV up 27% and yield up 3bp to 120bp. Demand was strong in Europe and Australia, although the CBI regulatory issue affected the number of new programmes that could be launched and therefore reduced establishment fee income. The business introduced AMF during the year for accounts that have been inactive for more than 12 months; these totalled A$23.5m during FY22, of which A$17.9m was non-recurring, and as these have a 100% gross margin, helped increase the divisional gross margin by 3pp y-o-y to 60.8%. Gross margins also benefited from the transition to in-house processing and the renegotiation of scheme arrangements.

Digital Payments (DP) – first year including Sentenial

DP benefited from the acquisition of Sentenial during H122. The original Virtual Account Numbers business saw a 4% revenue decline (GDV of A$9.8bn was up 10% y-o-y, yield was down 2bp y-o-y to 10bp) to A$9.8m. Sentenial contributed GDV of A$56.8bn and revenue of A$7.7m (yield 1.4bp), resulting in a divisional yield of 2.6bp.

Sentenial’s direct debit business was broadly flat y-o-y, with all growth coming from the Nuapay open banking business. Management noted that open banking volume was up 40% y-o-y on a pro forma basis and the business now has connections to 2,350 banks across 28 European countries with plans to take the technology to Australia. With blue chip customers already signed up (including payment gateways, merchant acquirers and financial institutions), the challenge now is to stimulate the use of open banking by customers’ merchants. EML expects to invest more in Nuapay in FY23, partly to provide support to customers to drive usage.

Since results were reported, the company announced that it had uncovered fraud within Sentenial’s direct debit processing business. It has identified a set of fraudulent merchants and believes that fraudulent transactions primarily took place in August. It has launched an investigation into how this happened and is seeking ways to recover the funds. Management estimates that the maximum loss will be €5.5m/A$7.9m and expects to be able to mitigate this via recovery actions.

Strategic review launched

Newly appointed CEO (11 July), Emma Shand, announced a strategic review of the business, with the outcome to be reported at the AGM in November. The aim of the review is to protect the base that has been built while ensuring that the business can grow in a sustainable way with a strong culture of regulatory compliance. Initial steps arising from the CEO’s first few weeks of reviewing the business include:

separating the global risk and compliance functions and appointing a group chief compliance and regulatory officer;

combining the North American and European G&I businesses to improve operational efficiency, enhance product and accelerate new business;

the agreed disposal of EML’s stake in Interchecks for A$10.6m (the value of the stake was written up to A$10.8m at year end, with the A$4.1m gain being recognised in comprehensive income); and

up to A$20m share buyback over 12 months starting in September.

Update on European regulatory issue

In July, the company provided an update regarding the ongoing regulatory issues between its Irish subsidiary, PFS Card Services (Ireland) Limited (PCSIL), and the CBI. EML’s remediation plan had a target completion date of 30 June, to be followed by a third-party assurance process. In the update, EML noted that the CBI had identified shortcomings in components of the remediation programme, principally the sequencing and approach taken to the risk assessment of its distributors, corporates and customers. PCSIL is adopting a revised approach to those components, which may include additional controls being embedded in its internal control framework. It anticipates that the third-party assurance will be finalised in 2023. As part of the remediation process, CBI has imposed growth limits on PCSIL – these are due for review in December. At this point, these caps are not restricting growth of the GPR division.

Outlook and changes to forecasts

The company has decided to delay providing guidance for FY23 until the strategic review is complete, but highlighted that interest income should improve during the year as central banks around the world raise their rates. While the company reported interest income of A$1.4m for FY22, A$0.8m was generated in Q422. In July, interest income was A$0.5m before interest rate rises in the UK, eurozone, the US, New Zealand and Australia and, on the August run rate, interest income of at least A$10m is expected for FY23. Gross margin for FY23 is expected to be similar to FY22.

Our forecasts assume that all business divisions continue to operate as they do now. The main changes to our forecasts include:

G&I: we have reduced our yield assumptions for FY23/24 to reflect a lower level of breakage.

GPR: we have increased our GDV and yield forecasts reflecting better than expected performance in FY22, and we have reduced our gross margin assumptions reflecting the lower level of AMF fees compared to FY22. While the company deals with regulatory issues, we assume that measures to improve gross margins will be delayed.

DP: we have reduced our GDV forecasts, reflecting slightly lower growth in the Sentenial business.

Overheads: we have increased these based on annualising the Q422 run rate of $31.4m and adding an amount for inflation.

We have conservatively added a one-off charge of A$8m for the Sentenial fraud issue.

Exhibit 3: Changes to forecasts

FY23e
Old

FY23e
New

Change

y-o-y

FY24e
Old

FY24e
New

Change

y-o-y

Revenues

A$m

255.5

256.7

0.5%

10.5%

294.2

287.8

-2.2%

12.1%

Gross profit

A$m

180.0

174.3

-3.2%

10.4%

210.4

196.5

-6.6%

12.8%

Gross margin

70.4%

67.9%

-2.6%

0.0%

71.5%

68.3%

-3.2%

0.4%

EBITDA

A$m

58.3

42.1

-27.8%

22.8%

78.4

52.6

-32.9%

25.0%

EBITDA margin

22.8%

16.4%

-6.4%

1.6%

26.6%

18.3%

-8.4%

1.9%

Normalised operating profit

A$m

39.8

22.7

-43.0%

23.3%

56.3

29.5

-47.5%

30.3%

Normalised operating margin

15.6%

8.8%

-6.7%

0.9%

19.1%

10.3%

-8.9%

1.4%

Reported operating profit

A$m

17.3

(7.8)

N/A

N/A

33.8

7.0

-79.2%

-189.7%

Reported operating margin

6.8%

-3.1%

-9.8%

-3.2%

11.5%

2.4%

-9.0%

5.5%

Normalised PBT

A$m

36.1

18.9

-47.5%

18.4%

52.5

25.8

-50.9%

36.3%

Reported PBT

A$m

10.7

(11.6)

N/A

3303.7%

27.9

3.3

-88.2%

-128.5%

Normalised net income

A$m

28.8

15.1

-47.5%

18.4%

42.0

20.6

-50.9%

36.3%

NPATA

A$m

31.4

10.7

-65.8%

-44.5%

44.5

22.6

-49.1%

110.7%

Reported net income

A$m

8.5

(9.3)

N/A

92.8%

22.3

2.6

-88.2%

-128.5%

Normalised basic EPS

A$

0.08

0.04

-47.5%

17.5%

0.11

0.06

-50.9%

36.3%

Normalised diluted EPS

A$

0.08

0.04

-47.4%

17.5%

0.11

0.05

-50.8%

36.3%

Reported basic EPS

A$

0.02

(0.02)

N/A

91.4%

0.06

0.01

-88.2%

-128.5%

NPATA/share

A$

0.08

0.03

-65.8%

-44.9%

0.12

0.06

-49.0%

110.7%

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

(54.6)

(21.2)

-61.1%

-318.5%

(57.3)

(11.6)

-79.7%

-45.3%

GDV

A$bn

106.6

103.4

-3.0%

28.9%

120.6

110.2

-8.7%

6.5%

Yield

bp

24

25

1

-4

24

26

2

1

Divisional data

GDV

G&I

A$bn

1.5

1.5

-1%

1.6

1.6

-1%

GPR

A$bn

13.9

14.2

2%

15.3

15.6

2%

Digital Payments

A$bn

91.3

87.8

-4%

103.7

92.9

-10%

Revenue

G&I

A$m

81.3

75.7

-7%

89.4

84.1

-6%

GPR

A$m

147.2

156.3

6%

165.0

173.5

5%

Digital Payments

A$m

26.7

24.5

-8%

39.6

30.0

-24%

Gross profit

G&I

A$m

65.0

60.6

-7%

71.5

67.3

-6%

GPR

A$m

92.7

93.0

0%

106.4

104.1

-2%

Digital Payments

A$m

22.0

20.5

-7%

32.2

24.9

-23%

Gross margin

G&I

80.0%

80.0%

80.0%

80.0%

GPR

63.0%

59.5%

64.5%

60.0%

Digital Payments

82.1%

83.6%

81.4%

83.0%

Source: Edison Investment Research

Valuation

In FY23, EML is trading at a material discount to global payment processor peers on all metrics. Having previously traded at a premium, it is now trading at a discount to prepaid card peers on an EV/Sales and EV/EBITDA basis. Repeated downgrades have reduced confidence in the outlook for EML. Factors that could help the stock to re-rate include the resolution of the regulatory issue without imposing material growth constraints on the European business, clawback of the costs of the Sentenial fraud and the outcome of the strategic review.

Exhibit 4: Peer valuation multiples

Currency

Market cap

Sales growth

EBITDA margin

EV/Sales (x)

EV/EBITDA (x)

P/E (x)

(m)

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

EML Payments

A$

374

10.5%

12.1%

16.4%

18.3%

1.5

1.3

9.1

7.3

25.0

18.4

Payment processors

Adyen

47,064

35.6%

36.1%

60.8%

61.4%

30.7

22.5

50.5

36.7

75.7

56.2

FIS

US$

54,700

5.7%

6.9%

44.4%

45.1%

4.9

4.6

11.0

10.1

12.7

11.4

Fiserv

US$

64,879

8.8%

7.3%

42.5%

43.5%

5.0

4.7

11.8

10.8

15.6

13.6

Global Payments

US$

34,382

4.6%

8.5%

48.7%

49.4%

5.6

5.2

11.5

10.4

13.1

11.4

PayPal Holdings

US$

105,390

9.7%

14.3%

23.8%

24.3%

3.8

3.4

16.1

13.8

23.2

19.1

Block

US$

39,148

-0.3%

18.9%

4.4%

5.6%

2.2

1.9

49.7

33.3

72.5

42.0

Worldline

12,278

16.4%

10.8%

25.2%

26.4%

3.9

3.5

15.3

13.2

19.3

16.9

Average

11.5%

14.7%

35.7%

36.5%

8.0

6.5

23.7

18.3

33.2

24.4

Prepaid card companies

Appreciate Group

£

49

-7.9%

3.3%

9.4%

10.9%

0.3

0.3

3.1

2.6

6.5

5.4

Edenred

12,690

18.2%

10.5%

41.6%

42.0%

7.1

6.4

17.0

15.3

31.6

27.6

Euronet Worldwide

US$

4,310

13.4%

10.9%

16.9%

19.2%

1.3

1.2

7.8

6.2

13.6

10.3

FleetCor Technologies

US$

15,687

20.4%

8.4%

54.5%

56.0%

6.2

5.7

11.4

10.2

13.1

11.9

Green Dot Corp

US$

1,076

2.2%

2.7%

16.7%

17.0%

2.6

2.5

15.5

14.9

8.2

7.5

WEX

US$

6,726

22.6%

6.2%

45.0%

45.5%

4.1

3.8

9.0

8.4

11.5

10.8

Average

11.5%

7.0%

30.7%

31.8%

3.6

3.3

10.6

9.6

14.1

12.3

Australian fintechs

Humm Group

A$

253

11.2%

3.6%

9.5%

14.3%

6.2

5.9

64.7

41.6

14.2

9.0

Zip Co

A$

571

21.3%

17.7%

-19.4%

-7.0%

3.6

3.1

N/A

N/A

N/A

N/A

Average

16.2%

10.6%

-4.9%

3.7%

4.9

4.5

N/A

41.6

N/A

9.0

Source: Edison Investment Research, Refinitiv (as at 5 September)


Exhibit 5: 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

256.7

287.8

Cost of Sales

(17.7)

(24.2)

(32.9)

(63.8)

(74.6)

(82.5)

(91.3)

Gross Profit

53.3

73.0

88.1

128.4

157.8

174.3

196.5

EBITDA

 

 

21.0

29.7

32.5

42.2

34.3

42.1

52.6

Normalised operating profit

 

 

18.1

25.6

22.4

31.6

18.4

22.7

29.5

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

(7.8)

7.0

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

18.9

25.8

Profit Before Tax (reported)

 

 

5.0

9.0

(7.9)

(23.3)

(0.3)

(11.6)

3.3

Reported tax

(2.8)

(0.6)

0.7

(5.4)

(4.5)

2.3

(0.7)

Profit After Tax (norm)

14.4

20.5

17.2

24.1

12.8

15.1

20.6

Profit After Tax (reported)

2.2

8.5

(7.1)

(28.7)

(4.8)

(9.3)

2.6

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

15.1

20.6

Net income (reported)

2.2

8.3

(7.1)

(28.7)

(4.8)

(9.3)

2.6

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

0.041

0.055

EPS - diluted normalised (A$)

 

 

0.057

0.078

0.055

0.066

0.034

0.040

0.054

EPS - basic reported (A$)

 

 

0.009

0.033

(0.023)

(0.080)

(0.013)

(0.025)

0.007

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

10.5

12.1

Gross Margin (%)

75.1

75.1

72.8

66.8

67.9

67.9

68.3

EBITDA Margin (%)

29.6

30.6

26.9

21.9

14.8

16.4

18.3

Normalised Operating Margin

25.4

26.4

18.5

16.4

7.9

8.8

10.3

BALANCE SHEET

Fixed Assets

 

 

108.0

162.9

872.1

685.3

827.3

972.7

1,005.7

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

532.2

582.1

Current Assets

 

 

131.6

313.8

1,008.6

1,603.5

1,855.1

2,089.8

2,257.8

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

35.3

39.5

Cash & cash equivalents

39.0

33.1

118.4

141.2

73.7

104.6

75.0

Other

71.1

248.2

846.2

1,424.0

1,724.1

1,933.9

2,125.9

Current Liabilities

 

 

(90.5)

(299.0)

(1,357.8)

(1,792.8)

(2,100.1)

(2,488.8)

(2,730.4)

Creditors

(21.2)

(33.9)

(47.5)

(62.9)

(65.7)

(69.9)

(76.6)

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)

(2,414.3)

(2,649.3)

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

430.3

435.5

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

430.3

435.5

CASH FLOW

Op Cash Flow before WC and tax

19.7

28.4

31.2

41.2

33.3

41.1

51.6

Working capital

(9.2)

2.0

3.6

31.7

(68.4)

8.8

(6.0)

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)

2.3

(0.7)

Net operating cash flow

 

 

6.5

29.2

22.8

50.2

(39.2)

43.9

45.0

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)

31.0

(9.6)

Opening net debt/(cash)

 

 

(39.9)

(39.0)

(18.1)

(82.5)

(103.0)

9.7

(21.2)

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

(21.2)

(11.6)

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 £60,000 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 2022 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 £60,000 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 2022 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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Basilea Pharmaceutica — Strategic streamlining – sale of oncology assets

Management continues to execute its strategic plan and has announced the sale of its novel poly (ADP-ribose) glycohydrolase (PARG) inhibitor discovery programme to Nodus Oncology, a UK-based biotech company. Basilea is entitled to receive upfront and near-term milestone payments of CHF1m and potential future milestone payments up to CHF241m in total, in addition to royalty payments of ~5% in net sales. The transaction is part of the company’s broader strategy to cease oncology activities by the end of 2022 to focus on its core anti-infectives business. We anticipate the company to continue to monetise the balance of its oncology assets in the near future. Our valuation of Basilea remains unchanged at CHF893.8m or CHF75.5/share.

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