The share price of payment services provider EML Payments Ltd (ASX: EML) is down 21% to $1.40 at the time of writing following the release of its half-yearly earnings report for the period ending 31 December 2017.
Key highlights from the half-yearly report include:
- Gross Debit Volume (GDV) increased by 86% over the prior corresponding period (pcp) to $3.58 billion.
- Revenues grew by 18% over the pcp to $38.2 million.
- Earnings Before Tax, Depreciation and Amortisation (EBTDA) rose by 35% to $13.5 million.
- Stored value increased by 31% over the pcp to $515 million.
- Net profit for the period rose by 47% to $2.04 million.
What happened?
The company's result and outlook appears to have fallen short of market expectations. From an operational perspective, the large rise in GDV reflects the organic growth from existing programs and from recently launched programs as the company continues to gain traction in the payments space.
About 91% of the company's revenues are now recurring with the expanded international presence reflected in 77% of revenues being earned offshore.
Gross margins dipped 3% on the pcp to 75%, which is a concern as the company's product mix focuses towards reloadable and Business to Business (B2B) virtual payments. EBTDA (the company's preferred measure for assessing performance) growth of 35% demonstrates the scalability of the company's business model as the growth in revenues outpaced the rise in overhead expenditure.
Stored value of $515 million reflects the balance of funds held in financial institutions on behalf of customers which allows EML to generate interest revenue. The company should see a boost in interest income over the next several periods with interest rates projected to rise in Europe and the United States where the majority of the stored value is held.
Foolish takeaway
Today's large share price fall demonstrates the riskiness of high growth stocks that fall short of meeting the expectations the market has priced into them. Management's outlook for the second half was also likely below expectations.
FY18 GDV is now projected to be between $6.7 billion and $7.0 billion with LuLaRoe volumes over the last 3 months trailing below the previous 6 month average, which will consequently have a material impact on forecast GDV.
Gross profit margins are projected to remain steady at 75%. Management also expects new gaming program launches and European mall opportunities to accelerate GDV growth in FY19.
Despite today's large fall it might still be premature to call a bottom. The company certainly has several growth drivers which should boost earnings over the next few periods and is a stock to watch in the small cap Australian financial technology space.
