Key points
- The EML share price has sunk close to 20% in 2022, is it too low to be ignored?
- CBI is now going allow EML to keep signing new customers and launch new programs
- EML keeps growing at a fast pace and is rated as a buy by UBS
The EML Payments Ltd (ASX: EML) share price has fallen by not far off 20% in 2022. Considering this year is only a few weeks old, that's a sizeable decline.
Share markets around the world are dropping as investors worry about the size and pace of the central bank interest rate rises.
However, whilst share prices are dropping, it can lead to some ASX shares being opportunities for investors.
With that in mind, here are some reasons why the EML share price could be an opportunity:
De-risked by the Central Bank of Ireland (CBI) update
EML shares went through a savage sell-off last year as the company warned that a substantial part of its European business could see its growth significantly impacted by potential limitations put on it by the CBI.
However, two months ago EML announced some CBI news that heartened investors. The broker UBS said that it de-risked the business.
EML said that the CBI will permit its Irish subsidiary to sign new customers and launch new programs whilst staying within the material growth restrictions. EML is confident it can meet these obligations. It 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.
The ASX share said that the remediation plan is on track.
EML also revealed that the CBI said that broad based reductions in limit controls on programs will not be imposed. The CBI is satisfied to continue engaging with EML's subsidiary, with a view to agreeing appropriate limits under its risk management and controls framework.
The company said that the CBI intends to impose a material growth limitation over the total payment volumes for 12 months, or rescinded earlier after third party confirmation that the remediation plan has been effectively implemented.
Fast growth
A business that is growing quickly may give itself a better chance of producing outsized returns over time. The EML share price could benefit if the business keeps growing quickly.
EML is creating instant and secure payment solutions that connects its customers with their customers. Its technology is being used for a variety of uses including open banking, gift cards, e-gift cards, general purpose reloadable cards, buy now, pay later and so on.
It's growing quickly across a number of areas. In FY21 total gross debit volume grew 42% to $19.7 billion. Revenue went up 60% to $194.2 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 65% to $53.5 million. Underlying net profit after tax (NPATA) rose 54% to $32.4 million.
EML is benefiting from a few different trends, including the rise of fintechs as well as the shift of payments going from cash to electronic.
FY22 is expected to be another year of growth.
Gross debt volume is expected to be between $93 billion to $100 billion, which includes Sentenial and Nuapay. The EML component is expected to be between $24 billion to $26 billion, representing growth of 20% to 30%.
Revenue is expected to be between $220 million to $255 million, EBITDA is expected to be between $58 million to $65 million. However, the NPATA guidance range is $18 million to $34 million with an increase in compliance costs, insurance costs and the impact of Sentenial.
EML share price valuation
Multiple brokers rate EML shares as a buy, including UBS and Ord Minnett.
The UBS price target on UBS is $4.40. That's a potential increase of 60% over this year. The broker is expecting growing profit in the coming years.
EML shares are valued at 23x FY23's estimated earnings.
