On June 7th 2021, EML ASX released their Q3 trading update to the market. EML provides agile technology platforms that can power the payment process for business. However, after their recent acquisition of PFS Payments, they might have moved money a little too fast without doing the correct due diligence. 

EML ASX Q3 FY2021 Trading Update

From the Q3 FY2021 Trading Update. EML delivered a Gross Debit Volume (GDV) increase over the prior comparable 9months of 52% on PCP and a revenue increase of 65% to over $143.5 million. Interestingly enough the acquisition of PFS payments seems to be paying off delivering significant EBIDTA into the combined business. 

Source: FY2021 Q3 Market Update

EML ASX Business Segments

EML’s business can be separated out into three segments. General Purpose Reloadable (GPR), Gifts and Incentives (G&I) and Virtual Account Numbers (VANS). We haven’t particularly seen much growth in the war of the G&I segment in recent years, however, this segment is related to mall gift cards, with most malls in the UK just re-opening we might start to see this segment starting to get some sort of growth again. However, we remain quite unimpressed with the concept of the G&I business, we believe EML would be much better off selling this segment off and focussing on the GPR and VAN business. 

EML ASX
EML Share Price
Segment Analysis of Gross Debit Volume for Gift and Incentice Business of EML ASX

We believe G&I will deliver almost stagnant growth to the underlying business at best in the years to come. EML ASX blames the lockdowns but it’s important to note that online shopping is the way forwards, people are sick of going to the malls to go shopping. One key lesson from the COVID was that businesses that are actually performing and will be a part of the future are the ones that have performed well during COVID lockdowns. Most of the growth in our opinion with come from the GPR and VAN business. 

EML Share Price and Acquisitions

In the year to date, EML announced the acquisition and intention to enter the open banking sector with the acquisition of Sentential and NUAPAY. Sentenial was founded in 2003 and provide an account to account payments across the UK and Europe. Sentenial services major banking customers including Barclays, Llyods and Citibank. The acquisition will broaden EML’s payment offering allowing them to potentially in the future offer a “White Label” end-end banking service. EML will be a true finTech enabler if they can pull this off. EML has plans to expand the sentential product into Australia and North America. 

The combined EML incorporating PFS and Sentenial are expected to process over A$90billion in GDV in FY2022. Completion of the deal is expected to be completed in late FY21. The Market seemed to like this announcement of EML ASX proposed acquisition of Sentenial.

EML ASX and Central Bank of Ireland

On the 19th of May of FY21, The Central Bank of Ireland provided a regulatory notice to EML. The announcement relates to the CBI (Central Bank of Ireland) having significant regulatory concerns. These concerns relate to anti-money laundering and Counterterrorism. The directions, if made, could materially impact the European operations of the Prepaid Financial Services business, including potentially restricting PCSIL’s activities under the Irish authorisation.

Community Consensus

The Prophet community has the below opinions when it comes to the current share price of EML payments (EML ASX) at a share price of $3.69 and a market cap of $1.34 billion.

Source: Raw Data

Prophets Take

We won’t be participating in any buying of EML shares until after the impact of the Central Bank of Ireland’s full impact is made known to EML. We would rather miss out on some upside now whilst the risk reduces. Once the full impact on the PFS operation is known we will re-assess the risk vs reward of this stock. The community consensus seems to align with Prophets overall view of the stock until after the CBI impact is fully understood.

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