The EML Payments Ltd (ASX: EML) share price has recovered a lot of the lost ground since the COVID-19 crash. It has risen by 168% since the bottom of March, however it's actually still down by 37% from before the COVID-19 crash.
What is EML Payments?
EML Payments is a business that offers a wide variety of payment services. It has general purpose reloadable offerings such as gaming payouts with white label gaming cards, salary packaging cards, commission payouts and rewards programs. EML Payments also offers physical gift cards, shopping centre gift cards and digital gift cards. Finally, it offers virtual account numbers.
What happened during the worst of COVID-19?
FY20 was a record year for EML Payments. It generated a record underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $32.5 million, excluding acquisition costs for buying Prepaid Financial Services (PFS). EML said that it had a strong financial performance during the first eight months of the year before COVID-19 impacted trading conditions. The physical gift cards were hit, though online retailers provided some offset.
EML said that it had signed and launched with major new customers in all its verticals with the sales pipeline momentum evident in all markets. In FY21 it's seeing more companies seeking digital payment solutions as part of a global trend to move away from cash payments.
What happened in the latest quarter?
EML Payments recently gave an update for the first quarter of FY21 for the three months to 30 September 2020.
It said that first quarter revenue was $40.6 million, up 75% over the prior corresponding period and it was 20% higher than the fourth quarter of FY20. It also said that its EBITDA of $10 million was up 215% compared to the prior corresponding period and up 69% compared to the fourth quarter of FY20.
Historically, the first quarter of the financial year is the weakest. Cost control initiatives helped reduce cash overheads by $0.7 million over the prior corresponding period, excluding PFS.
The gift and incentive yield was ahead of expectations at 5.98% due to improved trading in shopping centre programs. Trading through the three months to December is crucial to the results of this segment.
The general purpose reloadable yield was in line with expectations at 1.1%, the same as the previous quarter, with a stable program mix. Excluding PFS, EML grew gross debit volume (GDV) by 16% compared to the prior corresponding period, driven by Australian payroll and gaming payout volumes.
The virtual account numbers saw GDV recover in the FY21 first quarter, with growth of 23% compared to the fourth quarter of FY20. It was in line with the prior corresponding period.
In terms of other growth avenues for the company, EML Payments is expanding to include non-card payments and open-banking payments. It's going to invest $10 million to $15 million on its technology and platform over 2021 and 2022.
Is the EML share price a buy?
EML is currently rated as a buy by the Motley Fool Million Dollar Portfolio investment service.
According to estimates on Commsec, the EML Payments share price is trading at 24x FY23's estimated earnings.
