The fund manager of listed investment company (LIC) WAM Active Limited (ASX: WAA) has sold the shares of EML Payments Ltd (ASX: EML).
What is WAM Active?
It’s a relatively small LIC that is run by the investment team at Wilson Asset Management. It targets “market mispricing opportunities in the Australian market”.
WAM Active has been operating since January 2008 and has produced a gross portfolio return of 12.2% per annum.
Some of the current top 20 holdings include Aristocrat Leisure Limited (ASX: ALL), ALS Ltd (ASX: ALQ), Capitol Health Ltd (ASX: CAJ), Data#3 Limited (ASX: DTL), News Corp (ASX: NWS), Pengana International Equities Ltd (ASX: PIA) and Virgin Money UK CDI (ASX: VUK).
However, one position that it doesn’t own any more is EML Payments, which it recently sold.
What happened with EML Payments?
As WAM Active explained, EML Payments provides a payment platform that process and authorises card transactions to merchants in 21 countries.
EML recently announced that the Central Bank of Ireland (CBI) had raised concerns about the company’s anti money laundering (AML) and counter terrorism financing (CTF) compliance in its prepaid financial services (PFS) card services business.
The company moved its European business to Ireland after Brexit.
WAM Active pointed out that the PFS card services business forms approximately 27% of the company’s total revenue, which could be impacted if the Central Bank of Ireland takes action.
It was due to the above uncertainty that WAM decided to sell its position in EML Payments in the WAM Active portfolio.
Further EML disclosures
In the recent trading update for the nine months to March 2021, the company said that the gross debit volume was up 52% to $14.9 billion, revenue was up 65% to $143.5 million and earnings before interest, tax, depreciation and amortisation (EBITDA) had grown 62% to $43.8 million.
EML generated $10 million of EBITDA in the FY21 first quarter, $18.1 million in the second quarter and $15.7 million in the third quarter.
The CBI issue doesn’t currently have a timeframe for completion as there is no statutory timeline.
EML said it remains in an ongoing dialogue with CBI about its concerns, giving substantial responses, data and access to teams. The ASX company said it’s working co-operatively with the CBI.
Management said that the business continues to focus on EML’s strong pipeline of new customers and supporting existing customers, but the company is aware that ongoing uncertainty is a risk and challenge.
In terms of the costs, the immediate one-off cost incurred for legal and professional advice fees are expected to be less than $2 million in FY21. In addition, the company may see an impact of delayed program launches on establishment income and transaction fees which can’t be quantified right now. EML said that the financial impacts can’t be fully determined for FY22 yet.