The EML Payments Ltd (ASX: EML) share price has gone from strength to strength with phenomenal organic growth, further fuelled by strategic acquisitions.
The payment technology company is going for the next leg up following the $423 million acquisition of Irish firm, Prepaid Financial Services. This acquisition is a game changer for a company that has only focused on payment technology solutions for payouts, gift incentives and rewards. Prepaid provides EML with exposure in providing prepaid payments and digital banking capabilities and other flexible software solutions to financial and non-financial institutions.
Strategic rationale behind the acquisition
EML's acquisition of Prepaid Financial Services is transformational for so many different reasons.
- Post-acquisition completion, EML will be positioned as one of the largest fintech enablers in open banking and prepaid solutions globally. The group is expected to process in aggregate $18 billion gross debit value (GDV) in FY20
- The acquisition broadens EML's solution suite to include digital banking and multi-currency offerings
- It further diversifies EML's customer footprint to include financial and non-financial institutions
- Prepaid Financial Services brings scale to EML's European operations and entry into 8 new markets including Hungary, Greece and Slovenia and further penetration into the UK, France and Spain
- Increased room for cost savings from investment in internal processing technologies.
Q1 FY20 financials update
EML also updated the market regarding its Q1FY20 performance as part of its acquisition and equity raising announcement on 11 November. For Q1FY20, the company saw 35% increase in revenues on the prior corresponding period. It also provided FY20 guidance (excluding Prepaid Financial Services) that expects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be in a range of $38.5 million–$42.5 million, which represents growth of 29–43%.
Prepaid had an EBITDA of $17 million in FY19 and forecasted EBITDA of $24 million in FY20. This would mean the combined group would have a FY20 EBITDA growth of at least 50%+.
Is it a buying opportunity?
The EML share price soared on the announcement of the acquisition – neither the size, dilution or discount of the capital raising could hold the share price down. Even today, the EML share price is up 5.53% at the time of writing and close to breaking out to a new all-time high.
There could be the possibility that the share price shows some degree of weakness after the settlement and commencement of trading of new shares. However, the acquisition is such a game changing feat, and immediately earnings accretive, that in my opinion the current price levels should be the new normal.
