The EML Payments Ltd (ASX: EML) share price has dropped heavily. Could it be an opportunity?
EML is down 7% today, amid market volatility in relation to Russia invading Ukraine. There have been a lot of declines in recent times for EML. The last month shows an 15% drop of the EML Payments share price and the past six months shows a 42% decline.
The EML share price has fallen so far that it is now below the level that it collapsed to after the news of the Central Bank of Ireland (CBI) investigation.
What's happening to the EML share price?
You'd need to ask the sellers of today, and the last few months, why they decided to sell for a lower price than before, and what encouraged them to sell.
Investors can decide to react to different pieces of news with varying responses.
Analysts were concerned that EML's European growth would be significantly limited if the CBI decided to impose major growth limitations based on concerns surrounding anti-money laundering and counter-terrorism financing (AML/CTF).
But there was a CBI update in November 2021. CBI said that it would permit EML's European subsidiary (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.
CBI also said that it's satisfied to continue to continue to engage with PCSIL with a view to agreeing appropriate limits under its risk management and controls framework.
But, the CBI did say it intends to implement material growth limitation on total payment volumes for 12 months, or earlier if a remediation plan has been effectively implemented. PCSCIL has been removing higher volume, lower-yielding programs to enable it to comply with a material growth restriction.
Reaction after its FY22 half-year result
The EML share price, and share prices of many businesses, often react to a business' result.
Looking at the EML report, gross debit volume (GDV) jumped 209% to $31.6 billion thanks to organic growth in all segments as well as the acquisition of Sentenial. Revenue grew by 20%. The gross profit margin was impacted by lower net interest and lack of European set up fees.
Interest revenue is expected to improve in the second half of FY22 as announced central bank interest rate increases improve yields.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 4% to $26.9 million. The underlying net profit after tax (NPATA) rose 6% to $13.1 million.
The EML share price had fallen by 15% between reporting day and yesterday (before the Russian invasion).
Analyst ratings on the EML share price
Brokers think there is significant upside for EML shares.
UBS has a buy rating on the business with a price target of $4.55. That's more than 90% higher than today. The broker thinks the market was being too focused on the cons and not enough of the pros of the business. Higher interest rates will help earnings in the coming financial years. On UBS numbers, the EML share price is valued at 20x FY23's estimated earnings.
Ord Minnett also rates the EML Payments share price as a buy, with a price target of $4.03. It recognises the ongoing growth of the business, though costs were higher in HY22. It thinks that FY23 looks promising.
