Key details from the trading update (20 May 2020):
The payments sector is currently changing in Australia and overseas and EML is amongst it. EML has now de-risked the business With 80% offshore revenue, 85% recurring revenue and strong reporting by all of its verticals in particular VANS and the salary sacrificing segment. Breakage from the cards business is becoming less relative as their verticals grow which is another positive.
EML has the reputation in recent years of beating expectations and reports a conservative outlook. The upwardly revised guidance range appears conservative and Could add further upside especially with the PFS acquisition adding to its earnings. Guidance has been flagged to $39.5m-$42.5m from $38.5m-$42.5m which if conservative a likely 2H beat is coming. Current prices are an opportunity to get into this company with more growth to come.
Positive or Negative thoughts around EML?
As I thought, EML has restructured it’s proposed acquisition of PFS Financial so it falls in line with the current disruption to Covin-9. The initial acquisition price was $452m plus earnouts over three years. Today the upfront payment of around $252m will be funded by the recent capital raising which left the cash reserves at around $280m.
The acquisition was noted to be completed by the end of this week, with appprovals granted. This new deal will leave EML with cash on hand, nil debt and hence a strong balance sheet after the acquisition, albeit still some downside risk due to the mall side of PFS in Spain and France until we get to the other side of this pandemic.
This will make EML the worlds largest fintech in open banking and prepayments operating in 26 Countries. In the short term there will be price volatility due to the uncertainty of earnings of the business, but in the long term, this will set up EML well for the future. The cash in the bank will help,the business get through the pandemic and allowing it to seek another acquisition or expand the business for future growth.
Amazing insights in the below livewire market outlook. See you all at the $5 party.
The five stocks discussed in this particular "BHS" episode have appreciated by an impressive 243% on average over the last 12 months. Returns like this are usually divisive, with investors on both sides of the trade declaring them either structural winners, or overpriced hype stocks. High prices, high expectations, but with them, the chance of high returns.
Will the prices crash like Blackmores? Or are they set for years of outsized returns like CSL?
Of the five stocks discussed (ISX, JIN, EML, PET & APT) the two guest analysts - being Arden Jennings, Co-Portfolio Manager at Ausbil Investment Management, and Robert Miller, Portfolio Manager at NAOS Asset Management - only agree on one of them being a "BUY" - and that one is EML - which is discussed from the 2:44 mark in the video.
PFS expressing interest to support the clients of the Wirecard collapse https://www.businesswire.com/news/home/20200626005239/en/ Hopefully a solution can be put in place that can be beneficial for all parties.
Roger Montgomery is also a fan
See attached report for full analysis.
Date of Analysis: 5/3/2020. Idea source: Small cap, Stock screener, (more than 50M shares). Analysis date price: AUD2.65.
Good Stocks Cheap: The price needs to drop -86% to AUD0.36 in order to be cheap.
Growth With Value: The price is cheap and, remaining so, can still move up 271% to AUD9.83.
Does anyone else have any thoughts on how this business copes with the onslaught of trouble brewing in the retail sector? I'm hoping Christmas renews interest in gift card purchases but other catalysts are out there? It's proving to be a real laggard in a recessionary environment. More so than I would have expected it to be