Why the EML Payments (ASX:EML) share price is rocketing 19% higher

Here’s why the EML Payments Ltd (ASX:EML) share price is rocketing higher following its half year results this morning…

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The EML Payments Ltd (ASX: EML) share price has been a very strong performer on Wednesday.

In morning trade the payments company’s shares were up as much as 19% to $5.00.

The EML Payments share price has since pulled back but remains 12% higher at $4.72 at the time of writing.

Why is the EML Payments share price rocketing higher?

Investors have been fighting to get hold of EML Payments shares this morning following the release of its half year results.

For the six months ended 31 December, the company reported strong growth across all key metrics.

EML Payments reported a 54% increase in group gross debit volume to $10.2 billion, which led to a 61% jump in revenue to $95.3 million.

Due to the company’s pivot to deriving the majority of its revenue from the General Purpose Reloadable (GPR) segment, its margins narrowed slightly.

This ultimately led to group earnings before interest, tax, depreciation and amortisation (EBITDA) growing at a slightly slower (but strong) rate of 42% to $28.1 million. And on the bottom line, the company reported group net profit after tax (before amortisation) growth of 30% to $13.2 million.

EML Payments achieved underlying operating cash inflows of $35.1 million, up 68% on the prior corresponding period. This left it with a cash balance of $136.5 million. No dividend was declared.

What were the drivers of its growth?

The key driver of EML Payments’ growth during the first half was the aforementioned GPR segment.

Gross debit volume from the GPR segment grew 233% over the prior corresponding period to $4.87 billion. This was driven largely by the inclusion of Prepaid Financial Services, which contributed $3.12 billion in gross debit volume. EML Payments completed the acquisition of the UK-based business in April 2020.

As expected, the company’s Gift & Incentive (G&I) segment struggled during the first half due to COVID-19 related mall closures, lockdowns, and social distancing regulations. Its gross debit volume fell 11% to $0.75 billion.

Finally, the Virtual Account Numbers (VAN) segment performed well and delivered a 6% increase in gross debit volume to $4.59 billion. Management advised that this was driven by volume growth from existing customers. The business finished the period on a run rate of $815 million per month. Management feels this is a positive sign for the remainder of the year.

Outlook

Speaking of the remainder of the year, this morning the company has reinstated its guidance for FY 2021.

Full year revenue is forecast to come in between $180 million and $190.0 million. This will be up 48% to 56% on FY 2020.

EBITDA is forecast between $50 million and $54 million, up 54% to 66% on FY 2020.

Finally, net profit after tax before amortisation is forecast to be in the range of $30 million to $33.5 million. This will be up 25% to 40% on FY 2020.

Management notes that its guidance incorporates the uncertainty of COVID-19 as lockdown and social distancing measures remain in place for the foreseeable future in many of its key markets in Europe and North America.

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James Mickleboro has no position in any of the stocks mentioned. 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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