Down almost 20% in 2022, is the EML share price now too good to ignore?

EML shares have suffered in 2022. But could it now be a buy?

| More on:
woman thing about her payment

Image source: Getty Images

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said that the CBI intends to impose a material growth limitation over the total payment volumes for 12 months, or rescinded earlier after third party confirmation that the remediation plan has been effectively implemented.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.

Should you invest $1,000 in EML right now?

Before you consider EML , you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and EML wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended EML Payments. The Motley Fool Australia owns 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.

More on Growth Shares

Two brokers pointing and analysing a share price.
Growth Shares

The ASX 200 share this fund manager singles out amid rising interest rates

Companies that rely on the share market to fund their future growth could be facing some hurdles as interest rates…

Read more »

Three Archer Materials scientists wearing white coats and blue gloves dance together in their lab after making a discovery
Growth Shares

Why CSL shares are ‘going to deliver’ in 2022: fund manager

Quality growth companies can perform well even in an era of rising interest rates.

Read more »

A man activates an arrow shooting up into a cloud sign on his phone, indicating share price movement in ASX tech shares
Growth Shares

Why this fund manager is backing Xero shares for the rest of 2022

Rising interest rates have seen most growth stocks sell off this year.

Read more »

a man holds his hand under his chin as he concentrates on his laptop screen and makes a concerned face.
Growth Shares

Are investors missing out on these ASX share opportunities?

Here are two ASX shares that investors might be missing out on.

Read more »

The hands of three people are cupped around soil holding three small seedling plants that are grouped together in the centre of the shot with the arms of the people extending into the edges of the picture.
Growth Shares

‘Future-proof your portfolio’: experts pick 3 quality growth ASX shares to buy

Growth shares have been hammered the past six months. A couple of fund managers nominate which ones to pick up…

Read more »

A young woman lifts her glasses with one hand as if to take a closer look at something as she has a look of surprised interest on her face with her mouth in an O shape.
Dividend Investing

2 ASX shares that could be buys for both growth and dividends

There are a select group of ASX shares that could deliver growth and income.

Read more »

A business man in soft-focus holds two fingers in the air in the foreground of the shot as he stands smiling in the background against a clear sky.
Broker Notes

Buy these 2 ASX shares on sale right now: top broker

A top broker has revealed two ASX shares which have fallen heavily but look like good buys.

Read more »

Growth Shares

Experts name 2 beaten down ASX growth shares to buy after the market meltdown

These beaten down growth shares could be in the buy zone...

Read more »