There are a few compelling reasons why the EML Payments Ltd (ASX: EML) share price could be an interesting idea to think about.
The company announced its FY21 half-year result to the market this week and it included a number of strong growth numbers.
What is EML Payments?
For readers that haven’t heard of EML, it’s a diversified payments company that develops solutions for businesses. It says that its innovative payment solutions provide options for disbursement payouts, gifts, incentives and rewards.
It operates across 28 countries in Australia, Europe and North America. It can process payments in 27 currencies.
What did EML just report?
EML Payments just reported a high level of growth across all of its financial metrics.
For the six months to 31 December 2020, total gross debit volume (GDV) grew by 54% to $10.2 billion. This drove group revenue higher by 61% to $95.3 million.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) went up 42% to $28.1 million and underlying net profit after tax (NPAT) rose by 30% to $13.2 million.
The strongest growth rate was the increase in underlying operating cash inflows of 68% to $35.1 million.
Here are 3 reasons why the EML share price could be interesting
1: Strong growth for general purpose reloadable (GPR)
GDV in the GPR segment grew strongly, rising by 233% to finish on $4.87 billion. This division generated $54.4 million of revenue, being more than half of the business.
Despite the lockdowns and social distancing restrictions in key markets including Spain, France and the UK, the acquired business called Prepaid Financial Services (PFS) exceeded EML’s expectations, contributing $3.12 billion in GDV, following strong performance in the digital banking and government sectors.
The GPR segment also saw growth in the non-PFS EML businesses with organic growth of 25%. Two areas that impressed were the salary packaging with 60% growth and gaming with 42% growth.
2: Expected recovery of gift and incentive
The gift and incentive segment, which includes things like physical gift cards, saw challenging trading conditions due to COVID-19 related mall closures, lockdowns and social distancing regulations, with GDV in the segment falling 11% to $0.75 billion. The EML share price dropped to $1.34 in March 2020 as investors worried about the impacts of COVID-19 in this division.
There were stringent lockdown restrictions in European and Canadian markets in the weeks just before the seasonal peak of Christmas, resulting in a 19% decline in mall volumes compared to last year. Despite this impact, incentive programs grew 11%, partially offsetting weaker mall volumes.
But EML is expecting a recovery. It said that whilst this is impacting its short-term results, it’s expecting the majority of the lost volume in the malls segment to be recovered in FY22 as economies re-open and lockdown restrictions.
Management are also expecting more growth in its incentive vertical driven by new partners and programs in the market.
3: Global growth
EML is one of the ASX shares that’s delivering global exposure and growth. There are some businesses that are focused on just Australia and/or the US.
Looking at the general purpose reloadable and gift & incentive divisions, both of them generate more than half of the GDV from Europe.
It’s the virtual account numbers segment where most of the GDV comes the Americas.
The company continues to add new partners to its payments network. Some of the latest ones are: Vista Money, Store Cash, Shouta, Hello Loyalty and Perx.
At the current EML share price, it’s priced at 29x FY23’s estimated earnings according to Commsec.
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Tristan Harrison 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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