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EML Payments share price higher following Smartgroup deal

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It certainly has been a busy week for EML Payments Ltd (ASX: EML) and its management team.

On Tuesday it announced the acquisition of UK-based shopping centre-focused gift card solutions company, Flex-e-Card Limited, for a total consideration of £21.6 million (A$40.5 million).

Flex-e-Card, which trades as flex-e-card and flex-e-vouchers, has 226 shopping centres under contract in Europe and the United Arab Emirates. It is expected to generate $4 million to $4.1 million of EBTDA in the first year of ownership.

Today the payments company has followed that up with an announcement this afternoon which reveals that it has entered into an eight-year agreement with salary packaging and fleet management company Smartgroup Corporation Ltd (ASX: SIQ).

According to the release, the agreement will see EML Payments become Smartgroup’s provider of branded general-purpose reloadable card programs for the pay out of salary packaging benefits.

EML has worked with Smartgroup since 2017 and currently manages approximately 50,000 benefit accounts.

This latest agreement is expected to bump the total number of benefit accounts under management to 260,000 by April 2022, cementing its position as the largest provider of payment solutions to the salary packaging industry in Australia.

How does the company generate revenue from the agreement?

The release explains that EML Payments’ primary revenue will derive from a monthly transaction fee per benefit account alongside other revenue streams such as interchange, interest, FX fees, transaction fees on non-reloadable cards sold, and breakage.

Once at full potential, the company expects to earn between $4 million and $8 million revenue per annum from the incremental volumes in this contract, provided there are no adverse changes in market conditions.

The market has responded positively to the news. In afternoon trade the EML Payments share price is up over 2% to $2.39, stretching its 12-month return to an impressive 82%.

Other high-flying payments companies include Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) which are up 238% and 357%, respectively, over the same period.

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Returns as of 6th October 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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