Two months on, what is the outlook for the EML Payments (ASX:EML) share price?

It has been an eventful couple of months for the EML Payments Ltd (ASX: EML) share price. Since this time in May,…

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It has been an eventful couple of months for the EML Payments Ltd (ASX: EML) share price.

Since this time in May, the payments company’s shares have lost 26% of their value.

Though, this isn’t a bad outcome considering the EML Payments share price was down as much as 45% at one stage.

Why is the EML Payments share price under pressure?

Investors were selling down the EML Payments share price in May after the release of an update on its PFS Card Services Ireland business. That update revealed that the Central Bank of Ireland raised concerns over the business in relation to Anti-Money Laundering/Counter Terrorism Financing compliance.

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

Management revealed that 27% of EML Payments’ total revenue is generated by the 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.

Where next for its shares?

Where the EML Payments share price goes next could depend on what action the Central Bank of Ireland takes on the PFS Card Services Ireland business.

However, one leading broker has effectively removed the business from its valuation and still believes EML Payments shares are decent value. According to a note out of Macquarie, its analysts have an outperform rating and $3.95 price target on its shares.

While Macquarie may have removed the under-fire business from its valuation, it appears confident that any action will not be as extreme as forcing it to shut down. This could mean a big increase in its valuation should the outcome be much more favourable for EML Payments.

Recent broker upgrade

Another leading broker that appears to agree with this view is RBC Capital. Earlier this month the broker upgraded EML Payments shares to an outperform rating with an improved price target of $4.50.

RBC Capital believes the market is overestimating the impact from any action, creating a buying opportunity for investors. It suspects that a one-off fine and higher compliance costs are the most likely outcome from the investigation.

Overall, the last couple of months have been tough for EML Payments shares. However, if these brokers are to believed, the next two could be much more positive.

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Motley Fool contributor 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 has recommended EML Payments. The Motley Fool Australia owns shares of and 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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