It's now the first month of 2021. Some of the ASX shares that could be worth looking at are from the payments sector.
Here are three quality businesses to consider:
EML Payments Ltd (ASX: EML)
This ASX payments share has a number of different payment services for clients to use. EML Payments 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.
EML Payments is regularly adding services and business segments to its overall portfolio. Management have previously explained that new programs take years to scale. Programs will be typically material to financials in three to four years.
The ASX payment share boasts of very high retention rates with strong barriers to entry. EML operates in a heavily regulated industry and is responsible for moving and reconciling billions of dollars a month. Systems, infrastructure, regulation and compliance are important and can't be ignored by potential competitors.
Dominic Rose from Montgomery Lucent Investment Management said at the start of December that the company was bouncing back well from COVID-19 impacts. Much of its profit was from shopping centre gift cards before the pandemic came along.
Mr Rose said: "the recent encouraging vaccine news materially increases confidence in a solid earnings recovery in FY22. Market estimates are for earnings before interest, tax, depreciation and amortisation to rebound 40 per cent in FY22 to $74 million, still well below pre-COVID expectations of $95-100 million.
Looking back, one positive arising from the pandemic was EML's ability to reprice and restructure the Prepaid Financial Services (PFS) deal in late March, allowing the company to retain a strong balance sheet ($118 million net cash as at the end of June) which offers optionality for further acquisitions. Valuation remains attractive for the growth potential of the business, in our view, with the stock trading on 12x recovered EBITDA (FY23 EBITDA $93 million)."
Sezzle Inc (ASX: SZL)
Sezzle is one of the larger buy now, pay later businesses on the ASX which is focused in the US. It is not as large as Afterpay Ltd (ASX: APT) or Zip Co Ltd (ASX: Z1P), but its growth rate is even stronger at the moment.
In the most recent update, which was November 2020, the ASX payment share said that underlying merchant sales (UMS) grew by 188.5% to $153.9 million and annualised UMS rose by 188.5% to $1.85 billion.
Consumer and merchant numbers are also growing quickly. Active consumers grew by 151.5% to 2.07 million and active merchants went up 164.5% to 24,846.
Sezzle CEO and executive Chair Charlie Youakim said: "In addition to our record setting performance in November and over the Black Friday Cyber Monday weekend, we are extremely excited about the direction of our business, as we recently partnered with GameStop and eCommerce platform Wix…Our integration on Wix is available to all Wix merchants in the US, Canada, India and in the future will be available in other regions as Sezzle expands internationally."
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is an ASX payment share that's aiming for clear market leadership in the large and medium US church donation sector.
As a payments business, it has high (and growing) profit margins. In the FY21 interim report, Pushpay's earnings before interest, tax, depreciation, amortisation and foreign currency (EBTIDAF) margin improved by 14 percentage points from 17% to 31%.
Pushpay expects "significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low."
Over the longer-term Pushpay is aiming for US$1 billion of revenue. Using the closing Pushpay share price from Friday, it's valued at 47x FY21's estimated earnings.
