While it’s too soon to declare the end of COVID-19, most countries have shown signs of flattening the curve and the relaxation of lockdown measures. This bodes well for the following 2 ASX tech shares that provide payment solutions and value-added business banking products.
EML Payments Ltd (ASX: EML)
The EML share price went on a spectacular run in 2019, soaring by more than 200%. However, the business has faced significant headwinds given its dependency on shopping centres and gift card consumption.
EML recently updated the market regarding its third-quarter and April performance. The update outlined challenging business conditions, a more diversified business model and expected improvement in trading conditions moving forward. There are many reasons why EML could emerge as a leading S&P/ASX 200 Index (ASX: XJO) tech share coming out of the coronavirus.
EML’s acquisition of Irish firm, Prepaid Financial Services (PFS) was said to be a game-changer. PFS provides prepaid card and payments technology that offers some of the most flexible and quick to market services in the prepaid payments industry. It has a broad network of partners including governments, mobile network operators, banks and blue-chip organisations. This acquisition allows EML to diversify its earnings away from gift cards and expands its geographical footprint in the European region.
The coronavirus pandemic has allowed EML to renegotiate the terms of its PFS acquisition. The upfront enterprise valuation was reduced to £131.5 million, down £94.5 million from £226 million. EML was previously criticised for not completing the acquisition soon enough. I believe investors should be grateful that the terms of the acquisition were renegotiated at a cheaper valuation.
Recent business update
EML highlighted a strong financial performance for the 9 months to 31 March 2020. This performance excludes its PFS acquisition which will be included in financial results from 1 April. EML’s gross debit volume (transaction volumes) increased 55% over the prior corresponding period, while revenue increased by 20%. Earnings before interest, tax, depreciation and amortisation (EBITDA) also jumped 24%.
At the end of April, EML held more than $125 million in cash. The gradual opening of malls in various countries during May and June should see an improvement to EML’s trading conditions moving forward.
Tyro Payments Ltd (ASX: TYR)
Tyro Payments has provided weekly updates to the market regarding transaction volumes on its EFTPOS terminals.
In May, the company saw its transaction volumes fall 18% on the prior corresponding period. This marks a significant improvement against April, where transaction values fell 38%.
The market appears to be very optimistic about how Tyro will perform moving forward. The Tyro share price has rebounded strongly, up 340% since its March lows and more than 10% already in June.
Tyro’s client base consists largely of Australian small and medium-sized enterprises in the health, hospitality and retail verticals. Most restaurants, cafes and shopping centres in Australia have been allowed to reopen. This should see a general improvement in Tyro’s transaction volumes and potentially year-on-year growth moving forward. While the Tyro share price has soared in June, it is certainly one to watch.
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Lina Lim 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 Tyro Payments. The Motley Fool Australia 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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