EML releases FY22 results

Obviously this has been smashed in recent months.

The growth in itself is impressive nonetheless, however looks like they have only just missed EBITDA from their revised guidance given a few months back.

• GDV of 80.2Billion
• revenue of 234.1m up 21%
• EBITDA $51.2m was aiming for 52-55m
• underlying NPATA $32.1m above revised guidance of $27-30 but down 1%
• announcement of a $20 share buy-back

EML continues to grow at a good rate but they have certainly had some difficulties. Organic growth GDV was 19% and organic revenue growth of 17%.

Margins were up 1% to 68% so they continue to have strong margins which i suspect they can pass on in a high inflationary economy.

EML is broken into 3 segments.

• GPR
• GDV 12.4bn
• revenue 148.1m
• gross profit 90m (gross profit margin 61%)
• G&I
• GDV 1.3bn
• revenue 68.4m
• gross profit 54.6m *gross profit margin 80%)
• digital payments (expansion into open banking)
• GDV 66.6bn
• revenue 17.6m
• gross profit 14.9m (gross maargn 85%)
• this will be the key area for growth in coming years with handsome margins)

sentenial contributed $7.7m following acquisitin on 30 Sept 2021 which is an open banking business, the previous CEO stated this will be one of the largest growth segments of the business in the next 10 years.

unfortuantely for EML the expenses due to the CBI and class action matters have really impacted them. The CBI matter has obviosuly impacted thei growth with the limitations currently placed on the business.

EML has $73.7m cash on hand

as stated previously EML are a large beneficiary of interest rate hikes. just in Q4 they made $0.8m from rising interest rates due to the large stored float they hold.

Looking forward

• mentioned that August annualised run rate exceeds $10m.

Overall EML continues to grow at a good rate with limitations. No doubt they have had one of the more challegning FY22 compared to most ASX companies. The numbers though are still attractive. Having said that with the CBI issue still occuring it is hard to get excited for the business until we know how long limitations will be maintained for. I will remain on the sidelines here but given the share buy-back it does look like the company now sees the SP as cheap. Will be intereting to watch the new CEO and how she gets her head around a very complicated business. For now i will continue to monitor but it remains on my watchlist especially once the CBI issue is over. EML usually gives guidance at the AGM in November.

DISC - do not hold

My thesis is broken today. What a lesson I have learnt from this one. Once upon a time up over 250% and now down 50% in my real life portfolio.

today I have sold my entire position. Tom Cregan was a large part of my thesis which I have previously made suggesting that Since he commenced as CEO he took Eml from a issuer of shopping mall cards to a worldwide payments platform. A complex business that I feel he understood well.

what I learnt is sell when regulation issues hit a business. My second warning was the downgrade which is when I should have sold out. Funnily enough whilst reviewing my thesis of companies this weekend I said if Tom left I’d be out and come Monday it happened (weird).

I will continue to monitor the business. It has 100m on the balance sheet and is now a 400m market cap. However for now with the regulation issues I’m out and will continue to watch. The businsss will last through any downturn and I do believe it looks handsome for a takeover now.

Contract won with Spain government.

500,000 virtual prepaid cards loaded with 400eu to support the entertainment and cultural settings. Total value loaded under the stimulus program is AU$320mil which will contribute to FY23.

EML now has won a number of government contracts in recent years.

the one major question I have is that this contract is expected to contribute a material proportion of the growth cap that CBI have placed in EML until December 2022. Last mention about this Tom Cregan the CEO expected that come July 1 they should hear that growth limitations should be removed with the expectation that the CBI will continue to monitor and watch EML closely until Dec 2022. This announcement sort of suggests that growth limitations will continue until Dec 2022 rather than the expectation of July 1. There has been no mention about where the current CBI situation stands and there is serious risk that EML is unable to grow as expected until restrictions are removed.

disc- held

Mixed bag of results for EML. Not sure what to think of it to be honest. I don't think it will exactly move the price much either way but I do see some light at the end of the tunnel in what has been a difficult past 2 years.

• Highlights GDP volume of 31.6 Billion up 209%
• Revenue of $114mil up 20%
• EBITDA of 26.9mil (down 4%)
• NPATA of $13.1 mil up 6%
• FY22 guidance reaffirmed between $58-65 mil

Theres a fair bit to get through in this report but some key points include

• Revenue impacted by COVID restrictions in European countries during the Christmas period with malls in Germany closed and distancing rules implemented. Positively this surely will be the last time this occurs.
• gross profit margin of 66% which were down 5% but this has been impacted by lower interest rate (which should now raise eg UK), CBI issues impacted margins but this should improve as this issue is put to bed.
• EBITDA down due to investment in to the CBI issues including general overhead costs to ensure they were meeting the requirements now and moving forward, lower net interest income and lower European set up fees. Management report they have commenced some initiatives to increase interest income, reduce scheme costs and introduce new fees on dormant balances that should improve Margins.
• Further impacted by non recurring costs in regards to CBI issue as mentioned above and also the Shine Lawyer litigation which they have set aside $10.5 mil towards their defence.
• underlying operating cash flow of 14.7 mil impacted by the delayed receipt of 2 large customers totalling $8.6mil which will come through in second half.
• the outflows are large and continue to grow but I can see that they are for future growth including acquisition costs
• EML continue to be cashed up with 86.2mil on hand as well as 30mil of contract assets (breakage accrual) with about 63% converted to cash within 12 months. Breakage accrual is essentially money from gift cards that is not spent and goes straight to EML is my understanding,

Lots of bad/avg news but positively guidance is maintained

• Revenue maintained between 230-250mil. I still expect this with the large receipts to come through to be at the top end of this guidance provided
• EBITDA maintained at $58-65 mil
• NPATA forecast between $27-34 mil.
• Pipeline remains strong in all segments and EML have a win rate of 40% which has been consistent.
• project accelerator continues to perform strongly and they have now launched a white label product named "seamless" for the US market. I am looking forward to learning more about this product in the webiner this morning.

My thoughts:

• good that they were able to maintain guidance but I am mindful of large outgoings. The report overall does not excite me. I remain bullish on the long term outlook of the company. PFS should show strong growth once CBI issue is over (which they did not confirm when this would be) and Nuapay the open banking product is signing some solid customers.
• EML will get through these difficult period and once they do I think growth will be huge, unless something else comes out of it again.
• I will not be adding to my position for now as I already have a large amount but I do believe as mentioned yesteday evening the RIsk/Reward ratio is postive.

Disc: Held IRL and SM

thought I would throw out a few predictions and expectations I am hoping for come tomorrow mornings release of results.

I am expecting the half year to be as followed in approximate figures

• GPR ~$67mil
• G&I ~$43m
• VANS ~10m
• total = ~$120mil or 26% growth
• Reaffirm guidance and I am hoping they tighten guidance to the top end of what was previously confirmed of between $240-250mil (previously 230-250 mil).

I think the figures will point towards a difficult half due to omicron variants and a not a normal European Christmas trade (think gift cards) as people were unsure about going to malls to spend but results should still be relatively strong. Remember the year prior there was pretty much no malls open. These Christmas months are EML's strongest months. Having said this I believe surely now the worst is behind and they should get some strong tailwinds with an opening environment.

I also expect management to explain strongly how a rising interest rate environment helps EML. They have mentioned this previously in historic webinars but I feel the market have not woken up to this. every 1% interest hike = 20mil for EML.

CBI update hopefully to inform us that they issue is now over. I imagine that even if it is not over they would be very close and EMLs twitter and linkedin has been very active in informing of new product launches. The cost of the issue and how much funds they need to dedicate towards this moving forward to ensure they are satisfying regulators. Once this is over I feel the company can then start focussing on what really is important.

Some other facts I want to know

1. update on open banking (I am incredibly bullish on this Nuapay acquisition and have written up about it previously (i think)
2. update on project accelerator and where Interchecks and Hydrogen are currently positioned. Interchecks is particularly interesting as they recently did another round of funding. EML initial investment of 2mil should be around $4-6mil now
3. lastly as EML saved so much money on the PFS acquisition they currently have about $150mil cash on hand. I am interested to see whether they have a plan to spend this to pursue revenue growth.

Just some thoughts. I have used recent weakness in SP to top up both in SM and IRL. I guess tomorrow I will find out whether that was dumb or not. Regardless I am bullish on the long term prospects of EML and think the risk/reward is favourable even though I acknowledge there is a lot of risk.

DISC: held

EML released a trading update alongside their AGM presentation.

Before I move forward they have a virtual EMLcon day tomorrow. Last year I personally thought it was amazing and a real step in to the future of the payments industry.

The update I thought was good and the market after initially opening lower have started to take kindly to it.

Even with the ongoing issues of the CBI matter EML were able to reiterate guidance and tightened the range to

• Revenue between 230-250 mil (previously 220-255)
• EBITDA maintained at $58-$65mil

Management also gave an update to the CBI matter. It continues to impact the business, including one-off costs however they continue to maintain confidence that the issue will be resolved mainly by the end of the year with all issues completely resolved by March 2022. CBI are yet to find any issues with the business and rumination appears on track. Frustratingly EML reported they have signed 36 contracts that have been put on hold whilst the matter is concluded. Obviously a negative but given they are able to maintain guidance whilst these contracts are on hold can be seen as a positive. Having said that majority of EML contracts are contribute to revenue 3-4 years down the track.

Continue to have a strong pipeline of contracts, they are winning 40% of the contracts they go up for so a decent win rate given the large worldwide payment sector competition. They provided an update on the Sentenial platform and also provided an update of the Project Accelerator and how these will work together to make a strong platform. I continue to be excited by the open banking sector and really excited how EML will grow in this sector.

My thoughts are that EML continues to be a strong business, even with the CBI issues that are occurring management are still executing on their growth strategy. It is really frustrating to see the SP where it currently is. Without these issues I know it would be a lot higher and more likely around the $7-8 mark. Rumination is slow however with the response given on 28th of October yet to be responded to by CBI. I personally see this as a buy opportunity and let the issues play out. management are confident matters will be resolved and I am content with the growth strategy of EML.

DISC- HELD IRL and SM

Yesterday I purchased more shares in EML IRL only. I didn't for my strawman portfolio because I think the issues are going to be drawn out and probably short term there are better shares for my SM portfolio.

I am not a short term investor and have held EML for a long time. The reason for my purchase of additional shares yesterday are because I believe they are exceptionally undervalued and I think the risk/reward is favourable. In saying that I could be incredibly wrong and the CBI could really punish EML and its growth opportunities for a while. However EML has mentioned that this only will impact whilst remediation occurs which they are hoping will be over come March 2022. I remain unsure but given I am looking 5 years from now I am happy To be patient and let it all play out. 
when EML made the PFS business acquisition to make that happen they raised capital at $3.50. I participated in this at the time. Currently the market is valuing EML cheaper than 2 years ago without PFS. PFS makes up around ~27% of the revenue so although not minor I still remain bullish on the EML business alone. EML has since grown tremulously signing around 2 deals per week, they have a huge pipeline of growth (potentially slowed because of the CBI issues) and I'm excited about the open banking acquisition recently made. Having said that PFS was a big COVID winner for EML and the reason for the SP moving back above $5 prior to this occurring. 

EML I believe is still an opening up stock. As the world opens up EML will improve. This includes shopping malls through gift cards and the gaming sector. Personally I believe with shopping malls having possible stock issues because of worldwide shipping restraints gift cards could be a real beneficiary. 

lastly CBI have yet to find any real major issue in regards to money laundering or other poorly governed concerns that have caused all of this. At the end of the day they are regulators and there job is to regulate. This has always been a risk for EML given the area they operate. I am not down playing what they may or may not have done but as of yet there is no detail outlying anything. I add that this is high risk, I generally would recommend not purchasing more during these type of issues are unresolved but valuation wise it seems worth an additional punt with a longer term view.

hopefully proven right, could very well be wrong. Time will tell.

EML completes Acquisition of Sentenial Limited.

To me this one is big. I am really excited about this acquisition. EML acquisition of Sentenial including their open banking product, Nuapay for an upfront enterprise value of A$112.7mil plus earn out of A$64.4mil.

Open-banking is a really exciting sector and makes EML a serious player in the payments sector worldwide expecting now to process A$90 billion post acquisition. Combining the EML & Nuapay platforms will enable EML to enter new industry verticals and diversify revenue streams. Sentenial has an attractive customer base across banking, cooperate and software industries including 4 of the top 7 banks in the UK and some of the largest merchant acquirers in EU. Sentenial has a highly scalable platform with plans to expand into Australia and North America. 

When this was initially announced EML SP at the time increased however due to the ongoing CBI issues it has continued to trade around the $3.6-$4 mark. I firmly believe that once these issues are resolved EML and if the outcome is favourable EML looks cheap. Open Banking is getting a lot of media currently reguarly mentioned in the AFR. It appears to be the future of banking and EML now appears to be a serious payments provider. The acquisition makes EML a world-first platform of card based payments, open banking and real time account to account based payment solutions coupled with extensive program management services.

I have a lot of faith in management who since taking over EML have turned this business from purely a gift card business to an interntional payments provider. Says a lot about them and with this acquisiton indicates to me that they are not resting on their laurels.

DISC - I hold IRL and strawman