https://www.livewiremarkets.com/wires/eml-looks-set-to-thrive-as-economies-reopen

Key details from the trading update (20 May 2020):

• March Group EBITDA of $1.9 million was down 37 per cent on the prior period. COVID-19 lockdowns drove widespread global mall closures, negatively impacting the Gift & Incentive (G&I) segment which mainly comprises mall gift cards (G&I gross debit volume (GDV) fell 29 per cent year on year with a larger earnings impact given the comparatively high 600 basis point revenue conversion rate). The reloadable (GPR) and the Virtual Account Numbers (VANS) segments were resilient, both generating strong growth in March with GDV up 10.4 per cent and 56 per cent, respectively;
• April Group EBITDA of $2.7 million, including PFS contribution plus a $2.2 million breakage release. Most malls were closed during the month so G&I GDV experienced further sharp falls (53 per cent below the prior period). GPR excluding PFS produced strong GDV growth (26 per cent) reflecting salary packaging roll out and surprisingly resilient online gaming turnover. PFS’ GDV growth rate slowed from 39 per cent in January and February to 12 per cent in April – digital banking and multi-currency travel cards were impacted by lockdowns, partially offset by growth in government disbursements, although this mix shift was negative for contribution margins. VANS GDV growth was positive (9 per cent), albeit compressed by timing of new customer launches;
• Cash conversion is tracking at around 100 per cent year to date, a strong improvement on 1H20;
• Balance sheet is in a strong position with $125 million net cash as at the end of April, plus $37 million of breakage accruals (three quarters should convert to cash over the coming 12 months);
• Management noted that although steps were taken to reduce headcount, cost cuts weren’t significant;
• In late March when EML announced it had renegotiated the PFS deal (settled 31 March), the primary objective was to avoid bringing on debt into the capital structure so the company could survive at least two years with zero revenues (unlikely scenario) on a monthly cash burn rate of $5-6 million. Clearly, the business performed much better than this over March and April;
• EML proudly provided some examples where its solutions were used to help vulnerable people during the COVID-19 pandemic. Nepo utilised EML to distribute emergency funds in the UK to support domestic violence victims while Epipoli deployed EML gift cards to aid the Italian Government in disbursing emergency funds to citizens in financial need;
• Near-term, EML expects trading conditions to sequentially improve in May and June from the April low as malls around the world gradually reopen. By June, the majority of malls in Italy are scheduled to be reopened, 60 per cent in Germany, 50 per cent in the US and 45 per cent in Canada. Timing in the UK remains uncertain. EML has 1,100 mall programs globally.
• PFS GDV growth has accelerated back to around 20 per cent in May; and
• Management highlighted that the sales pipeline is as strong as ever. COVID-19 has fast-tracked many company’s digital plans and EML fully intends to take advantage of this.

FY20 Highlights

• Record underlying EBITDA of $32.5m (excludes acquisition costs) up 10% from $29.7m in FY19
• Incurred one-off restructure costs of $0.6m in March 
• June (included in EBITDA) for $1.5m recurring savings (FY21 onwards) 
• Record NPATA of $24.0m up 17% from $20.6m in FY19
• Group underlying cash conversion of EBITDA at 110.1% with $118.4m of cash on hand at 30 June
• Strong financial performance during the first 8 months of the year before COVID-19 impacted trading conditions 
• The Group has a strong balance sheet with significant cash reserves and no senior secured debt ensuring the Group has the resources to successfully execute on our Strategy and be positioned to take advantage of opportunistic M&A
• Acquired and commenced integration of Prepaid Financial Services (Ireland) Limited ('PFS'), which pivots the group to generating the majority of Revenues from the General Purpose Reloadable ('GPR') segment, a long term strategic priority
• Reviewed the Group Strategy post acquisition of PFS in April 2020 and launched Project Accelerator to drive the Group's growth over the next three years
• Signed and launched major new customers in all verticals with sales pipeline momentum evident in all markets
• Post COVID-19 sales momentum strengthened by companies seeking digital payment solutions as part of a global trend to move away from cash payments

EML is a payments technology company, that provides customised paymentsolutions to their B2B clients. Not a one trick pony gift card company, and Ithink that will be evident in the future period as the wider company grows andthe Mall gift card sector 'potentially' shrinks. There is a bit of amisconception out there with what EML does and I think it can be simply puthere;

• EML enter into multiyear contracts with customers to provided tailored solutions to improve their customers customers' experience. EML continually improve their technology and product offering and therefore once a customer is captured the churn of these customers is relatively low.
  • This is why payments companies capture a niche in the payment market 
  • This is also why if payment companies fail to innovate, then they can potentially face losing customers - hence the benefit of R&D and Project Accelerator 
  • This is why EML may be able to carve out niches in the LT, through customised/integrated solutions.

Now to the results

The Good:

• EML have done an amazing job at managing what is in their control. You can't really fault them here. Once you put the COVID impact aside, the PFS renegotiation/product development/resource allocation have all been awesome - hopefully we see this pay off in the future.
• Growth in new customers and new verticals is positive and I think this may be underappreciated in the market right now.
  • Incentive programs launched:
    • 10 incentive partener contract on PAYS tech
  • GPR programs launched
    • 2 dozen contracts in Banking, Control Pay, Disbursements & Salary
    • Focus here on Sezzle and Laybuy being guided into multiple regions with EML as a processor.
      • I didn’t appreciate the single touch point focus here, but to be able to onboard a customer once and into EMLs 3 regional processors would be very nice
  • VANS
  • AU Business (smallest business) (aus-biz)
    • 4 dozen opportunities being worked on in pipeline
• July run rate of GDV - there are a few different ways to model this out and I'll try do it simply in aggregation. Note that this is using the July run rate and factoring in no growth from new business / change in revenue mix / impacts from further lockdowns. Basically, I think we can assume 55m EBITDA for FY21 as a baseline scenario. This would equate to ~$40 in underlying cash inflo

Option 1 - Total Business Aggregation ($m)

July GDV Performance

July GDV Annualised

GI

$72.00 

$864.00 

GPR

$835.00 

$10,020.00 

VANS

$727.00 

$8,724.00 

Total

$1,634.00 

$19,608.00 

GDV to Rev

90 bps

Total Revenue

$176.47 

GP Margin

70.00%

GP

$123.53 

Less Overheads

$68.00 

Underlying EBITDA

$55.53 

Underlying Cash Inflow - 70%

$38.87 

The Bad:

EBITDA margins in H2Fy22 had fallen to 21%, with the COVID & PFS impacts on the numbers I wouldreally prefer to wait for a clean set of numbers to see this wash through thefinancials. My baseline EBITDA margins for the business remains at 30%.

The Ugly:

Let's face it theimpact on the malls sector was huge. I found some comments suggestion thatMalls GDV was on track to do 1.1b seldom - the G&I segment's actual FY20performance was $1.175b. My assumption here is that maybe $250m in GDV wasimpacted which converts to

• $15m revenue
• $12m GP

The flip side tothis is that 

• As the G&I segment rebases, which will rebase the entire groups financials, then to call EML a gift card business will become very inaccurate
• $1.175 was the total G&I GDV for FY20 and in July EML generated $72m in G&I (annual $860m) without considering any seasonal effects.

BUY - Intelligent Investor view on EML

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.

8common Announces CardHero Launch Following the Signing of EML Agreement

• 8common has signed a 3-year agreement with EML Payments Limited to issue prepaid Mastercards through the company’s CardHero platform
• The agreement with EML enables the launch of 8common’s CardHero solution via two products: CardHero and CardHero+
• The core product CardHero, will be released as both a virtual and physical prepaid card combined with travel and expense management solutions. CardHero is targeted at government entities and large enterprise clients
• CardHero+ provides an additional fund disbursement platform which aims to support not for profit organisations and educational institutions

Amazing insights in the below livewire market outlook. See you all at the $5 party.

https://www.livewiremarkets.com/wires/strong-outlook-for-eml-in-a-post-covid-world

I thought I mightuse the example of CleverCards to demonstrate what people might be overlookingright now with EMLs partnerships. Now first things first, yes most of EMLsdeals are with non-Australian house hold names and I doubt many people haveheard of Clevercards before. EML do a lot of work, such as the EMLconpresentations, to assist with the markets understanding of the B2B (or a B2B2B) offering. Essentially theyjust provide a payment platform for other business to leverage. Byunderstanding in general what their offering(s) are and then watching theaggregate numbers grow/shrink or flatline is easier than worrying about one ortwo deals in isolation.

Back in Jan,CleverCards a 'Fintech', operating primarily in the UK, partnered with EML& Mastercard to send digital prepaid cards. Essentially, they signed up tothe Mastercard railroad network, by jumping on the EML train. The CleverCardsolution is to basically solve the problems of 'timing ' & convenience when it comes to P2P / B2C transfers

By CC partneringwith EML, they have been able to leverage the EML payment network/platform to1) provide instant and digital prepaid cards that can be delivered via SMS,Whatsapp email & then load into their virtual PAYS wallet for use 2) gainaccess to a larger market (Europe).

Fast forward to onlya few weeks ago and you can read articles that CC have increased their numberof payments by 10x in a few Quarters. There is a feedback loop that happenshere, by CC partnering with EML they have grown transactions in terms of productoffering and markets, then as EML develop more bells and whistles on theirplatform (think their new product development from project accelerator) then CCcan offer more solutions back to their customers.

This is why, when Eml saytheir sales pipe line is better than ever, it is related to these kinds ofdeals that start pretty small but then have the potential to grow significantlyover time - just like the recent deal with 8CO.ASX, this could be huge or fizzle out based on 8CO's execution. So it becomes a numbers game with EML, to launch as many programs theycan, without cocking it up and losing customers.

Jan 2020 -Announcement of partnership

https://www.emlpayments.com/wp-content/uploads/2020/01/Mastercard-Partners-with-EML-and-CleverCards-Media-Release-1.pdf

https://fora.ie/clevercards-mastercard-4968965-Jan2020/

https://www.finextra.com/pressarticle/81121/mastercard-partners-with-clevercards-and-eml-on-money-messaging-app

August Update:

https://www.finextra.com/pressarticle/83941/clevercards-embarks-on-hiring-spree

https://www.siliconrepublic.com/jobs/clevercards-jobs-dublin

26-Sep-2019:  Livewire.com: "Buy Hold Sell: 5 hot small caps on a high"

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

https://rogermontgomery.com/eml-looks-set-to-thrive-as-economies-reopen/

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

Monotone CEO gives fair reasoning as to why no guidance for the Christmas period is provided in an ausbiz interview. Whether this is genuine we won't know until later. Given the overly glossy presentation and the slightly hidden negatives in the report, I'm not filled with over confidence, more a slight distrust. Hopefully unfounded. 

Having said that, I won't be selling anytime soon and may even add. Eml maybe looking to stabalise the S.P over the coming months with the hope that a good number of their prospects pay off. This may create a less sentiment driven S.P. that could be pushing $4.50 by Feb. 

I maybe alone in thinking that this Christmas period could actually be really good for the gift card side of the business. It's the side of the business i like least but i can see it pushing EML forward in the short term. Nervously positive on EML! 

https://www.raskmedia.com.au/2020/08/19/your-guide-to-the-eml-payments-asxeml-fy20-report/

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. 

Framework outcomes 

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.