It has been a disappointing 12 months for shareholders of ASX payments solutions provider EML Payments Ltd (ASX: EML). Despite the EML share price climbing almost 250% off its March 2020 52-week low of $1.20 to $4.17 as at the time of writing, it is still well short of its pre-coronavirus record high of $5.70 recorded last February.
So what’s going on?
What does EML do?
Broadly speaking, EML offers three key payments services to its clients: general-purpose reloadable cards, branded gift cards, and virtual account numbers.
General-purpose reloadable cards are the sorts of cards used by online bookmakers like Ladbrokes or Sportsbet to distribute winnings to their clients. The cards allow their customers to make instant withdrawals or push back amounts to their gaming accounts. However, these types of cards can also be used for various other purposes by corporate and small business clients, such as for employee commission payments and incentives and rewards programs.
The company’s second payment solution is branded gift cards. EML is currently the largest provider of shopping mall gift cards in the world. Its branded gift cards category delivers tailored solutions to business clients and provides a suite of reports to help these clients track the effectiveness of their customer rewards programs.
EML’s third payment solution is virtual account numbers. These offer a more secure way of facilitating payments between businesses and their suppliers. The payment is made using a unique, single-use card number that can be faster and more efficient than traditional payments methods. This also means clients do not have to regularly communicate their real account numbers, making the entire payments process more secure.
Why is the EML share price still lagging?
The EML share price was hit especially hard by COVID-19. Retail store closures, rising unemployment rates, declining business activity, and even the suspension of many international sporting leagues all hurt EML’s underlying payments business.
A strong performance over the first 8 months of FY20 helped the company deliver an annual revenue uplift of 25% to $121.6 million and a 10% increase in earnings before interest, tax, depreciation and amortisation expenses (EBITDA) to $29.7 million. But, despite this resilient result, these growth rates lagged well behind FY19, when revenue jumped 37% year on year and EBITDA surged 40%.
The company will be hoping that successful vaccine rollouts in many jurisdictions will soon spark a brick-and-mortar retail recovery. And one positive development out of the COVID-19 environment the company will be focussed on is the cultural shift away from cash and towards card as the preferred payment method for many consumers.
More recent news out of the company
All eyes will be on the EML share price when the company releases its first-half FY21 results to the market next week. And there may be some reasons for investors to be cautiously optimistic.
In a first-quarter trading update released to the market back in October, EML stated that it was seeing significant recoveries in gift cards and general-purpose reloadable cards, while virtual account number volumes had rebounded to pre-COVID levels. Total revenue for the quarter was $40.6 million, an increase of 75% over FY20 first-quarter revenue, and EBITDA was a record $10 million, up 215%.
These results appear encouraging, particularly during a quarter that has historically been the company’s weakest. Investors will be hoping for evidence of more green shoots next week and that this translates to a higher EML share price.
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Rhys Brock owns shares of EML Payments. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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