EML Payments — Weaker European business drives downgrades

EML Payments (ASX: EML)

Last close As at 20/06/2024

AUD0.98

−0.02 (−2.01%)

Market capitalisation

AUD366m

More on this equity

Research: TMT

EML Payments — Weaker European business drives downgrades

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

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

EML Payments

Weaker European business drives downgrades

Q3 trading update

Software & comp services

3 May 2022

Price

A$1.58

Market cap

A$590m

$0.72: €0.67: £0.57: A$1

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

(47.1)

(49.7)

(73.2)

Rel (local)

(46.0)

(51.2)

(74.4)

52-week high/low

A$5.75

53

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 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EML Payments is a research client of Edison Investment Research Limited

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

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

28.8

16.8

06/21

192.2

30.2

21.0

6.6

0

24.0

13.0

06/22e

229.1

20.1

15.5

4.3

0

37.1

14.7

06/23e

268.4

45.5

38.9

9.6

0

16.5

8.1

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.

European performance behind expectations

EML’s Q322 trading update confirmed gross debit volume (GDV) growth of 408% y-o-y (we estimate 11% organic) and revenue growth of 21% to A$59.8m. Underlying EBITDA and NPATA were down 14% and 22% respectively. While the Australian and North American parts of the business traded in line with expectations, the European business was behind, mainly due to the focus on the Central Bank of Ireland (CBI) remediation project. This has delayed some operational improvement programmes and reduced the level of establishment fees in the General Purpose Reloadable (GPR) division. As EML expects some of these issues to continue into Q422, it has reduced its full-year guidance.

FY22 guidance reduced; revising estimates down

The company has revised down its guidance for FY22 GDV, revenue and underlying EBITDA. The underlying NPATA range has been tightened, but the lower end of the range is unchanged. We have reduced our FY22 revenue forecast by 2.6%, underlying EBITDA by 10.8% and underlying NPATA by 5.9%. We have also reduced our FY23 and FY24 forecasts, reflecting lower revenue and higher operating costs in FY22. Management has several initiatives underway to accelerate revenue growth and reduce the cost base and expects to benefit as interest rates rise globally.

Valuation: Lacking confidence

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 it has declined a further 41% 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.

Q3 trading update

On 26 April, EML Payments issued a Q3 trading update and reduced its guidance for FY22. The table below shows the performance for Q322.

Exhibit 1: Q322 performance

Q322

Q321

y-o-y

GDV (A$bn)

23.9

4.7

408%

Gift & Incentive (G&I)

0.20

0.16

24%

General Purpose Reloadable (GPR)

2.82

2.38

18%

Digital Payments (DP)

20.9

2.16

868%

Revenue (A$m)

59.8

49.7

21%

G&I*

20.8

19.7

6%

GPR*

32.7

25.9

26%

DP*

6.3

2.6

142%

Yield (bp)

106

25

-76%

G&I*

1,041

1,231

-15%

GPR

116

109

6%

DP

3

12

-75%

Gross margin

70.5%

72.7%

-2.2%

Underlying EBITDA

13.6

15.8

-14%

Underlying EBITDA margin

22.7%

31.8%

-9.0%

Underlying NPATA

8.1

10.5

-22%

Source: EML Payments. Note: *Edison estimate.

Overall, EML saw Australian and North American businesses trading in line with expectations. Due to the impact of remediation activities in Europe, the European prepaid business operating performance was significantly behind management expectations.

While G&I GDV was 24% higher y-o-y, reflecting more normal trading post COVID-19, we estimate that revenue was only 6% higher, as Q321 benefited from higher levels of breakage.

GPR GDV was 18% higher y-o-y, benefiting from growth in European programmes with PCS, Correos and the Home Office. Revenue yield improved from 109bp to 116bp, as the business recorded A$9.8m in new dormant account fees. This was partially offset by lower establishment fees and negative interest rates in Europe.

DP GDV grew 868% y-o-y reflecting the inclusion of Sentenial volumes (A$18.5bn); we estimate organic growth was 11% y-o-y. Revenue increased 142% y-o-y, with yield falling to 3bp as lower-yielding Sentenial revenues were included.

The lower gross margin (mainly due to negative interest rates and reduced establishment fees) and higher level of overheads resulted in underlying EBITDA and NPATA declining y-o-y. The company noted that underlying measures excluded A$13.6m in CBI-related costs.

The company signed 23 contracts in Q322, versus 26 in Q222 and launched 46 programmes in the quarter. It signed new contracts in the European employee benefits market (Up Spain) and the open banking market (Praxis Tech).

The CBI remediation programme is ongoing and the company continues to expect it to complete by the end of FY22, subject to independent review.

Exhibit 2 summarises the changes to guidance.

Exhibit 2: Changes to FY22 guidance

A$m

Old

New

Change

GDV (A$bn)

81–88

79–84

down 2–4

Revenue

230–250

225–235

down 5–15; mid-point now at bottom of previous range

Overheads

103–112

106–109

narrowed range

Underlying EBITDA

58–65

52–55

down 6–10

Underlying NPATA

27–34

27–30

range reduced, lower end unchanged

Gross margin

c 69%

c 69%

no change

Operating cashflow

80–90%

50–60%

reduced

Source: EML Payments

We discuss the main reasons for this downgrade:

Lower establishment fees in GPR: the company had previously flagged that these have been reduced due to restrictions on business within PFS relating to the CBI issue. EML expects continued challenges with launching new programmes in Q422 and estimates that in H222, establishment fees will be c A$4m lower than in H221.

Delay in approval for new bonds: EML is seeking to improve the returns on the cash it holds by investing some of it in bonds; regulatory approval for these bonds has taken longer than expected. This mainly affects interest income in the GPR division and is expected to have a A$1–2m impact in H222.

Currency: The Australian dollar has strengthened against the euro and sterling. The company estimates that this will reduce revenue by c A$1.5m in FY22.

Overheads spend in H2 towards upper end of expectations: the company has several projects underway to reduce operating costs. As the team in Europe has been focused on concluding the remediation project relating to the CBI issue, some of these projects are taking longer to deliver. Combined with increased headcount and IT spend in Europe to strengthen the compliance function, this results in overheads at the higher end of the original range.

Changes to forecasts

We have revised our forecasts to reflect the company’s new expectations. In particular, we have reduced our forecasts for DP, as volumes year-to-date have been lower than we had expected. We have increased our forecast for CBI-related costs to A$15.0m from A$12.7m, although these are excluded from underlying profit measures.

The company noted that several operational initiatives are underway which should help growth in revenue and margins in FY23:

GPR: launching new core programmes in Europe, including Up Spain and Banco Sabadell. The division should also continue to benefit from inactivity fees.

DP: improved open banking revenue as investment in the Nuapay side of the Sentential business starts to take effect.

Operational improvement projects: four projects delayed from H222 should contribute an incremental $4–5m cost saving.

Identification of efficiency opportunities: during FY22, the company invested heavily to manage the remediation plan, enhance the European executive team and strengthen the compliance function. A project is now underway to identify areas where cost efficiencies could be made.

Interest income: assuming the EUR bonds receive regulatory approval, rising rates globally should add an incremental $6–10m in interest income in FY23 (which is recorded as revenue).

Exhibit 3: Changes to forecasts

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

235.1

229.1

-2.6%

19.2%

286.1

268.4

-6.2%

17.2%

320.5

305.4

-4.7%

13.8%

Gross profit

A$m

162.5

158.2

-2.7%

23.2%

203.8

189.4

-7.1%

19.7%

231.3

218.9

-5.4%

15.6%

Gross margin

69.1%

69.0%

-0.1%

2.2%

71.2%

70.6%

-0.7%

1.5%

72.2%

71.7%

-0.5%

1.1%

EBITDA

A$m

45.7

37.1

-18.8%

-12.0%

83.5

67.7

-18.9%

82.4%

100.5

86.9

-13.5%

28.2%

EBITDA margin

19.4%

16.2%

-3.2%

-5.7%

29.2%

25.2%

-3.9%

9.0%

31.4%

28.4%

-2.9%

3.2%

Add back CBI costs

A$m

12.7

15.0

0.0

0.0

0.0

0.0

Underlying EBITDA

A$m

58.4

52.1

-10.8%

-2.6%

83.5

67.7

-18.9%

29.9%

100.5

86.9

-13.5%

28.2%

Underlying EBITDA margin

24.8%

22.8%

-2.1%

-5.1%

29.2%

25.2%

-3.9%

2.5%

31.4%

28.4%

-2.9%

3.2%

Normalised operating profit

A$m

31.8

23.2

-26.9%

-26.4%

64.9

49.2

-24.2%

111.7%

78.3

64.7

-17.3%

31.6%

Normalised operating margin

13.5%

10.1%

-3.4%

-6.3%

22.7%

18.3%

-4.4%

8.2%

24.4%

21.2%

-3.2%

2.9%

Reported operating profit

A$m

(2.9)

(7.5)

157.6%

55.3%

42.4

26.7

-37.0%

-457.5%

55.8

42.2

-24.2%

58.2%

Reported operating margin

-1.2%

-3.3%

-2.0%

-0.8%

14.8%

9.9%

-4.9%

13.2%

17.4%

13.8%

-3.6%

3.9%

Normalised PBT

A$m

28.7

20.1

-29.9%

-33.4%

61.1

45.5

-25.7%

126.3%

74.5

61.0

-18.1%

34.2%

Reported PBT

A$m

(10.3)

(14.9)

44.4%

-36.2%

35.8

20.1

-43.9%

-235.0%

49.9

36.4

-27.1%

81.2%

Normalised net income

A$m

22.9

16.1

-29.9%

-33.4%

48.9

36.4

-25.7%

126.3%

59.6

48.8

-18.1%

34.2%

NPATA

A$m

20.1

15.5

-22.7%

-26.2%

51.5

38.9

-24.4%

151.0%

62.1

51.2

-17.4%

31.5%

Add back CBI costs

A$m

9.1

12.0

0.0

0.0

0.0

0.0

Underlying NPATA

A$m

29.2

27.5

-5.9%

-15.0%

51.5

38.9

-24.4%

41.5%

62.1

51.2

-17.4%

31.5%

Reported net income

A$m

(10.3)

(14.9)

44.4%

-48.2%

28.6

16.1

-43.9%

-208.0%

39.9

29.1

-27.1%

81.2%

Normalised basic EPS

A$

0.06

0.04

-29.9%

-35.2%

0.13

0.10

-25.7%

124.5%

0.16

0.13

-18.1%

34.2%

Normalised diluted EPS

A$

0.06

0.043

-29.9%

-35.2%

0.13

0.10

-25.7%

124.6%

0.16

0.13

-18.1%

34.2%

Reported basic EPS

A$

(0.03)

(0.04)

44.4%

-49.6%

0.08

0.04

-43.9%

-207.2%

0.11

0.08

-27.1%

81.2%

NPATA/share

A$

0.05

0.04

-22.7%

-28.2%

0.14

0.10

-24.4%

149.1%

0.16

0.13

-17.4%

31.5%

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

(50.0)

(42.6)

-14.6%

-58.6%

(82.3)

(62.0)

-24.7%

45.4%

(102.6)

(71.3)

-30.5%

15.0%

GDV

A$bn

83.7

80.6

-3.8%

309.4%

121.0

106.6

-11.9%

32.4%

133.3

120.6

-9.5%

13.1%

Yield

bp

28

28

0

-70

24

25

2

-3

24

25

1

0

Divisional data

GDV

G&I

A$bn

1.3

1.35

2%

1.5

1.5

2%

1.6

1.6

2%

GPR

A$bn

12.3

12.1

-2%

14.1

13.9

-2%

15.5

15.3

-2%

Digital Payments

A$bn

70.1

67.1

-4%

105.4

91.3

-13%

116.2

103.7

-11%

Revenue

G&I

A$m

77.6

77.6

0%

87.2

88.7

2%

95.9

97.5

2%

GPR

A$m

136.3

134.0

-2%

155.3

152.8

-2%

170.8

168.0

-2%

Digital Payments

A$m

21.0

17.2

-18%

43.3

26.7

-38%

53.5

39.6

-26%

Gross profit

G&I

A$m

62.1

62.1

0%

69.8

70.9

2%

76.7

78.0

2%

GPR

A$m

83.1

81.8

-2%

98.6

96.2

-2%

111.0

108.4

-2%

Digital Payments

A$m

17.0

14.1

-17%

35.2

22.0

-38%

43.3

32.2

-26%

Gross margin

G&I

80.0%

80.0%

80.0%

80.0%

80.0%

80.0%

GPR

61.0%

61.0%

63.5%

63.0%

65.0%

64.5%

Digital Payments

81.2%

81.9%

81.2%

82.1%

81.0%

81.4%

Source: Edison Investment Research

Exhibit 4: Financial summary

A$'m

2018

2019

2020

2021

2022e

2023e

2024e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

71.0

97.2

121.0

192.2

229.1

268.4

305.4

Cost of Sales

(17.7)

(24.2)

(32.9)

(63.8)

(70.9)

(79.0)

(86.5)

Gross Profit

53.3

73.0

88.1

128.4

158.2

189.4

218.9

EBITDA

 

 

21.0

29.7

32.5

42.2

37.1

67.7

86.9

Normalised operating profit

 

 

18.1

25.6

22.4

31.6

23.2

49.2

64.7

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)

26.7

42.2

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

45.5

61.0

Profit Before Tax (reported)

 

 

5.0

9.0

(7.9)

(23.3)

(14.9)

20.1

36.4

Reported tax

(2.8)

(0.6)

0.7

(5.4)

0.0

(4.0)

(7.3)

Profit After Tax (norm)

14.4

20.5

17.2

24.1

16.1

36.4

48.8

Profit After Tax (reported)

2.2

8.5

(7.1)

(28.7)

(14.9)

16.1

29.1

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

36.4

48.8

Net income (reported)

2.2

8.3

(7.1)

(28.7)

(14.9)

16.1

29.1

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

0.097

0.13

EPS - diluted normalised (A$)

 

 

0.057

0.078

0.055

0.066

0.043

0.096

0.13

EPS - basic reported (A$)

 

 

0.009

0.033

(0.023)

(0.080)

(0.040)

0.043

0.08

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

17.2

13.8

Gross Margin (%)

75.1

75.1

72.8

66.8

69.0

70.6

71.7

EBITDA Margin (%)

29.6

30.6

26.9

21.9

16.2

25.2

28.4

Normalised Operating Margin

25.4

26.4

18.5

16.4

10.1

18.3

21.2

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

2,106.8

2,243.6

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

33.2

37.7

Cash & cash equivalents

39.0

33.1

118.4

141.2

129.1

148.4

89.6

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)

(2,465.6)

(2,695.2)

Creditors

(21.2)

(33.9)

(47.5)

(62.9)

(79.2)

(81.7)

(89.0)

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

479.4

511.0

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

479.4

511.0

CASH FLOW

Op Cash Flow before WC and tax

19.7

28.4

31.2

41.2

37.1

67.7

86.9

Working capital

(9.2)

2.0

3.6

31.7

9.6

(14.4)

(5.8)

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

(4.0)

(7.3)

Net operating cash flow

 

 

6.5

29.2

22.8

50.2

13.9

49.3

73.8

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)

19.4

9.3

Opening net debt/(cash)

 

 

(39.9)

(39.0)

(18.1)

(82.5)

(103.0)

(42.6)

(62.0)

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)

(62.0)

(71.3)

Source: EML Payments, Edison Investment Research

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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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Research: Metals & Mining

Agnico Eagle Mines — First view of an emerging champion

On an underlying basis, Agnico Eagle Mines’ (AEM’s) Q122 revenue of US$1,325.7m, EBITDA of US$583.8m, pre-tax profits of US$300.4m and adjusted net EPS of US$0.612/share were either at or above the top end of analysts’ expectations. Production (with Kirkland Lake included from 8 February) was 660,604oz at a total cash cost of US$811/oz (on a by-product basis) and an all-in sustaining cost (AISC) of US$1,079/oz. Including a full quarter’s contribution from Kirkland Lake’s mines, pro forma payable production in Q122 was 806,329oz. AEM maintained the quarterly dividend at US$0.40/share, while net debt (excluding leases) declined to US$503.7m, equivalent to leverage (net debt/[net debt + equity]) of just 3.0%.

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