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Why the EML Payments share price tumbled 15% lower today

The EML Payments Ltd (ASX: EML) share price is falling today despite profits climbing 70%. The payment solution provider tightened forecast revenue and profits for the full year, reducing the upper end of revenue guidance. 

EML shares slumped as much as 15.86% lower this morning but are now trading 11.71% lower for the day at $4.90 at the time of writing.

EML provides payment solutions for payouts, gifts, incentives, rewards and supplier payments. The company issues mobile, virtual, and physical card solutions across 23 countries in North America, Europe, the Middle East and Australia. 

What did EML report?

For the six months ended 31 December 2019, EML reported that Gross Debit Volume (GDV) increased 60% from $4.15 billion in the prior corresponding period (pcp) to $6.62 billion in the current half. This was driven by the Gifts & Incentives and Virtual Account Numbers divisions. Revenue was up 25% to $59.2 million from $47.2 million in 1H19, growing across all segments thanks to both organic growth and acquisitions. 

Record earnings before interest, tax, depreciation and amortisation (EBITDA) of $19.7 million was reported, an increase of 42% on 1H19 EBITDA of $13.9 million. First-half EBITDA has grown at a compound annual growth rate of 59% over 5 years. This has been driven by the expansion of global gaming programs, the transition of contracted benefit accounts in the Salary Packaging space, and the expansion of mall and instant gift programs in the Gift & Incentive sector. 

Gross profit margins increased 270 basis points on 1H19 to 75.7% with gross profits increasing 30% to $44.8 million. Net profit after tax (NPAT) increased 68% to $4.3 million, up from $2.6 million in the pcp. Meanwhile, net profit after tax and amortisation (NPATA) was $16 million, up 70% on the pcp. 

Business segments

EML’s Gifts & Incentives business unit contributed $40.1 million in revenue, up from $32.4 million in the pcp. Weaker retail macro environments in the UK and Germany were offset by stronger growth in Ireland, Eastern Europe, and Dubai.

The General Purpose Reloadable unit contributed $13.2 million in revenue from $12.3 million in the pcp. This segment result was driven by organic growth in salary packaging and gaming. 

Virtual Account Numbers contributed $5.5 million in revenue, up 174% from $2 million in 1H19. Volumes were in line with expectations with a long term contract agreed with major customer BillGo during the half. 

FY20 guidance

EML has forecast EBITDA of $39.5 million to $42.5 million in FY20, excluding acquisition costs, which would represent growth of 36% – 43%.

Revenue guidance has been tightened from a range of $116 million – $132 million to $120 million – $129 million. Additionally, NPATA guidance has been updated from a range of $26.2 million – $29.4 million to $27.5 million -$30.5 million. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Emerchants Limited. 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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