At the current EML Payments Ltd (ASX: EML) share price, one leading broker thinks it's still got a lot more upside.
Since the middle of last week, EML shares have risen 26%. Before getting to the broker's thoughts and price target on the business, let's look at what may have caused the rocketing share price.
EML Payments share price has risen after CBI update
There has been a cloud over the payments business for a number of months regarding issues relating to the Central Bank of Ireland (CBI) and its focus on EML's PFS Card Services (Ireland) Limited (PCSIL) business.
Whilst there is plenty of payments volume outside of the PCSIL business (such as in Australia), PCSIL is responsible for a substantial portion of EML's overall volume and also one of the expected growth areas for the EML business.
Last week, EML made an announcement about the CBI.
There were three areas that EML announced what the CBI had said:
- The CBI will permit PCSIL to sign new customers and launch new programs whilst staying within the material growth restrictions. PCSIL is confident that it can meet these obligations
- Next, broad-based reductions in limit controls on the programs will not be imposed. The CBI is satisfied to continue to engage with PCSIL with a view to agreeing appropriate limits under its risk management and controls framework.
- The CBI intends a material growth limitation over PCSIL's total payment volumes will be imposed for 12 months or rescinded earlier following third party verification to confirm PCSIL's remediation plan has been effectively implemented.
The CBI had invited PCSIL to provide it with submissions in relation to growth limits, which PCSIL intends to do by 30 November 2021.
PCSIL has been removing higher volume lower yielding programs to enable it to comply with a material growth restriction and is confident it can meet these obligations. EML also said its remediation plan is on track.
It may be important for investors to know about the above news, which could have been influencing the market's thoughts on EML's underlying value.
Broker view on the EML share price
UBS is one of the brokers that currently likes EML after the CBI update because the risks are now seemingly lower when it comes to the CBI and intended growth. The broker now thinks that EML will be able to win over new clients more easily.
The broker is expecting that EML Payments shares are going to continue rising. It currently has a price target on the business of $4.40, which is 27% higher than where it is today.
UBS is expecting rapid profit growth over the next couple of years from EML. Based on the broker's profit estimates, the EML Payments share price is now valued at 29x FY23's estimated earnings.
Recent growth update
Despite all of the disruption caused to EML by the CBI matter with PCSIL, the overall EML Payments business continues to grow at a fast rate.
In the first quarter of FY22, gross debit volume (GDV) went up 14% to $5.5 billion, which helped revenue increase 29% to $52.4 million and gross profit rose 20% to $34.4 million. Underlying net profit (NPATA) surged 41% to $4.6 million.
