Key details from the trading update (20 May 2020):
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;
Now to the results
Option 1 - Total Business Aggregation ($m)
July GDV Performance
July GDV Annualised
GDV to Rev
Underlying Cash Inflow - 70%
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%.
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
The flip side tothis is that
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
Amazing insights in the below livewire market outlook. See you all at the $5 party.
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
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
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!
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.