Why the EML Payments (ASX:EML) share price sank 42% in May

This payments company had a month to forget follow developments in Europe…

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The EML Payments Ltd (ASX: EML) share price was out of form in May.

Over the month, the payments company’s shares shed a very disappointing 41.9% of their value.

This made the EML Payments share price the worst performer on the S&P/ASX 200 Index (ASX: XJO).

Why was the EML Payments share price sold off?

Investors were heading to the exits in their droves last month following the release of an update on its PFS Card Services Ireland business.

That update revealed that the Central Bank of Ireland has raised concerns over the business in relation to Anti-Money Laundering/Counter Terrorism Financing compliance.

While Ireland isn’t a big market and this decline might seem like a bit of an overreaction, there’s more to this than initially meets the eye.

This is because due to Brexit, EML Payments moved its European operations out of London and into Ireland. This means that this business is actually responsible for all its PFS Card Services’ European revenue.

And this certainly is a meaningful portion of its overall revenue. Management notes that 27% of EML Payments’ total revenue is generated by this business. And with the Central Bank of Ireland intending to take action, potentially even removing its financial service authorisation for the European market, the company could lose a big chunk of its revenue.

Is this a buying opportunity?

According to a note out of Macquarie, its analysts believe the weakness in the EML Payments share price could be a buying opportunity.

Late last month the broker retained its outperform rating but cut its price target by 35% to $4.00.

So, with the EML Payments share price currently fetching $3.32, this price target implies potential upside of over 20%.

Macquarie responded to the aforementioned news by removing the European operations out of its valuation in case they cease. Though, the broker notes that it doesn’t believe this will be the case.

This could mean additional upside potential should the Central Bank allow the business to continue its operations.

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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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