Here’s why EML (ASX:EML) shares have surged 33% this week

It has been a great week for the payment solution company’s share price.

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Shares in EML Payments Ltd (ASX: EML) took off in a vertical fashion yesterday after the payments solutions provider confirmed an end to its investigation with the Central Bank of Ireland (CBI).

EML shares were on the down this week just prior to the announcement. They have reversed course over the past 2 days and now trade 32% higher at $3.62. Investors are piling in today as well, with today’s trading volume at 144% of their 4-week average volume so far.

Here are more details.

Go ahead, EML, do your thing

In the update, EML advised that the CBI has given the green light for it to establish a base and start signing customers in Ireland.

EML’s subsidiary, PFS Card Services (Ireland) Limited (PCSIL) was under the Irish regulator’s microscope after it voiced regulatory concerns with the company back in May.

At the time of the announcement, investors punished EML, wiping around half its value off the table in the days afterwards. Its share price had yet to make a recovery – until yesterday’s sprout from the soil of its 52-week lows.

Another positive from the CBI’s ruling is that no controls are set to be imposed on any of PCSIL’s new programs. The subsidiary has also agreed to work with the regulator and ensure all compliance measures are met with certainty.

One limit that was imposed, however, was a growth cap on PCSIL’s total payment volumes. The growth limitation will be in place for a year but could be removed beforehand if PCSIL verifies it is complying with all relevant measures.

The EML share price was catching bids like feeding tuna yesterday, as investors sent its share price flying from a low of $2.75 to close at $3.61.

The frenzy has since cooled off somewhat today, however shares are now up 18% on the month, and are starting to claw back some gains from the longer-term downtrend.

For comparison, just prior to the CBI’s investigation which started in May, EML had just reclaimed its losses from the March 2020 selloff, brought on by COVID-19. Back then it was posting record highs again, right before the news broke.

However, yesterday’s update has commentary shifting back to a more bullish tone. A recent note out of UBS updating its clients suggests that there is more life in the EML share price.

The broker retained its buy rating in the note and values EML at $4.40 per share following the update out of EML’s corner.

UBS reckons that the go ahead improves EML’s company risk profile, which in turn improves the risk and reward prospects for investors. The firm also believes it could re-rate at higher multiples in the future if European profits are high.

EML share price snapshot

These gains are welcomed for the EML share price, having posted a loss of just 1% in the past 12 months now. Despite this, it is still down 13% this year to date.

After wiping half of its value back in May, the EML share price was trading flat until October, where it began losing popularity.

It reached a 52-week closing low on 23 November, just before the CBI’s resolutions were announced, which sent EML shares back north.

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The author has no positions 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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