ASX:EML — Company Profile
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Stripe Issuing was just recently announced: https://stripe.com/issuing
Most threats, especially of large hortizontal plays going after verticals, tend to be overstated. But this looks like a very feasible one. Stripe has taken out the complexity out of issuing and managing cards - all programmatically. Any company with a need, and a dev team, would no doubt evaluate.
As many of EML's partners are in the betting industry, it will be interesting to consider the future impact of the new payments platform on funds transferred to EML's payment cards. For many of the betting operators providing EML's card to their client base, a key raison d'etre of the payment card is that it provides a means of instant access to withdrawable funds. However, a question will be whether the new payments platform will negate the need for a card due to the facility of instant payments via NPP to their normal banking institution, and as a result, reduce funds transferred to the cards and related turnover.
Further Info on the NPP here.
The new (still proposed) national gift card rules won't have a material impact on EML as longer expiries don't mean people spend more on the card given EML only collects the last few $ on a card (typical revenue margin is 5% on non-reloadable). In addition, EML is a specialist in corporate gift cards which are not in the purview (as was the case in the SA and NSW laws that made cards with 3 yr expiry) given its not consumers money on the cards. In addition the main impact of this regulation is that there will be a 2 year reset in the accrual vs cash receipt in the accounts as breakage takes longer to collect. In the EU and US businesses, expiries are multiyear or perpetual but this hasn't impacted the P&L rates of this business. The aussie NR business is now such a small part as per the chart attached (AU business from pg 11 of the FY18 report). EML is all about the reloadables in Australia.
News story today. Further regulation could present a threat to profit margins of EML:
EML Payments has entered into a multiyear agreement with GVC Holdings for the provision of branded reloadable loyalty cards for their European online gaming brands.
GVC is one of the worlds largest gaming and sports-betting groups, operating in 20 regulated jurisdictions. It owns Ladbrokes, bwin and Coral brands, amongst others, and transacted around 9 billions pounds in wagers in FY17.
At this stage, the timing of the rollout is yet to be finalised, but will have the same GDV to revenue conversions as its other programs. It wont impact the current year's earnings, and the company will update the market on its guidance at its AGM in November.
It is however a big win, likely to be material to earnings and validates the value of its offering.
Full announcement here
A great outline of the business in this presentation here (issued April 2018)
EML Payments provide prepaid cards (think gift cards). These can be the physical kind, or virtual (to use online) or mobile (for use in company apps).
Also do salary packaging products, allowing companies to provide non-cash benefits to empoyees. And also loyalty programs.
It is essentially a payments processing business. With $30m plus invested into back-end IT infrastructure.
Meaningful regulatory & complaince barriers to entry
Manage 1,100 card programs in 19 countries
The volume of debit transactions -- Gross Debit Vilume (GDV) -- was up 348% in FY17 and 86% in HY18.
Revenue and EBITDA have been growing very strongly in recent years; up 100% and 135% per annum since 2015.
Cash balance of $35 million
At HY18 they were calling for GDV of $6.7 - $7 billion and a 1% conversion to revenue metric.
That's revenue of $68.5 million (at midpoint), which is 18% growth on FY17.
Also called for 75% gross margin, which gives gross profit of $51.4m, up 16% on FY17
Using Pro-rata overhead expenses from HY, EBITDA should be around $20.9m, which is 44% growth
UPDATE: EML gave a presentation to Goldman Sachs Small & Mid Cap Conference in April 2018, and offered more sepcific guidance (which aligns with my assumptions above)