The EML (ASX:EML) share price is down 30% so far in 2021. Here’s why

EML shares are down around 30% this year.

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The EML Payments Ltd (ASX: EML) share price has fallen about 30% since the start of the year.

That was despite the business reporting quite a bit of growth in FY21.

EML Payments’ FY21 result

How a business performs can have a large influence on investor thoughts.

The payments company reported a number of statistics that had a higher level of growth. Gross debit volume (GDV) increased 42% to $19.7 billion. The revenue increased 60% to $194.2 million. This helped underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grow by 65% to $53.5 million.

Looking at the main profitability measures, underlying net profit (NPATA) rose by 54% to $32.4 million, whilst operating cashflow went up by 121% to $48.8 million.

The segment that makes the most revenue is the general purpose reloadable, which has use cases for things like banking as a service, software as a service, neo-lending, multi-currency, government and non-governmental organisations. It made $113.5 million of revenue – up 131%.

However, the existing EML business contributed $35.3 million of the general purpose reloadable revenue, representing 34% growth. The acquired PFS business contributed $78.3 million of revenue.

So, with PFS playing an important part in the overall result, it is no surprise that the market is focused on what is happening with PFS in Ireland.

The CBI investigation

The Central Bank of Ireland (CBI) has regulatory concerns about the PFS Card Services (Ireland) Limited (PCSIL) business. EML recently received further correspondence about potential ‘directions’ which included, but was not limited to, the remediation plan and material growth.

Whilst the nature of those potential directions is more limited than those originally foreshadowed by the CBI in May 2021. However, as presently framed, EML said that the directions could materially impact the European operations of the Prepaid Financial Services business.

Whilst acknowledging the remediation program currently underway and governance improvements with the PCSIL board, the CBI has advised that PCSIL’s proposed material growth policy is higher than what the CBI “would want to see”.

CBI has also proposed that certain limits be applied to programs that could have a negative impact on the PCSIL business. EML is going to present to the CBI a “significant and detailed” analysis of limits applied across almost 27,000 programs in the next week along with a proposed recalibration of limits for certain programs.

The CBI has invited PCSIL to provide submissions about the potential directions. The remediation plan is on track according to EML, which remains in ongoing dialogue about CBI’s concerns and the remediation plan.

Is the EML Payments share price a buy?

Some brokers are still positive on the EML Payments share price.

For example, EML is rated as a buy by the broker UBS, with a price target of $4.80. That suggests a potential increase of more than 60% over the next 12 months. UBS thinks that there could be a problem relating to bringing on new customers, if the CBI goes ahead with this.

Based on UBS’ numbers, the EML Payments share price is valued at 22x FY23’s estimated earnings.

The broker Ord Minnett has a less optimistic price target of $4.02 for the EML share price. But, once these problems are fixed, Ord Minnett thinks EML has a promising future.

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