Why is the EML share price tumbling again today?

EML shares are down another 4%, meaning it has fallen around 40% in two days.

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Key points

  • The EML share price is down again today
  • It follows the release of a trading update yesterday that showed growth
  • However, it reduced its guidance for FY22 because of European troubles

The EML Payments Ltd (ASX: EML) share price is down more than 2% today.

This follows the payment company’s shares dropping 38% yesterday after the release of a trading update that included a reduction of guidance.

However, EML isn’t the only business that’s seeing a decline today. The S&P/ASX 200 Index (ASX: XJO) as a whole is down around 1% at the time of writing. Some of the biggest tech names are also down heavily. For example, the Block Inc (ASX: SQ2) share price is around 6% lower.

EML’s trading update

Yesterday, EML reported growth in the three months to 31 March 2022.

Gross debit volume (GDV) increased 408% to $23.9 billion. In the 2022 financial year to date, GDV was up 272% to $55.5 billion compared to the prior corresponding period. The Sentenial acquisition was responsible for $38 billion of the GDV. Excluding Sentenial, GDV increased 17%.

In the third quarter, revenue was up 21% year on year to $59.8 million. The gross profit was up 17% to $42.2 million. However, due to a 50% increase in underlying overheads, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) only rose by 14% to $13.6 million.

FY22 third-quarter underlying net profit after tax (NPATA) increased 22% to $8.1 million.

Reduction of FY22 guidance

While the company reported growth in the third quarter, it reduced its guidance for some metrics.

EML said that its EBITDA guidance for FY22 was reduced by approximately 8% to a range of between $52 million to $55 million. The previous guidance was a range of between $103 million to $112 million. FY21 underlying EBITDA was $53.5 million.

The ASX share said that its Australian and North American businesses were performing in line with expectations.

However, it reported “operational execution issues in Europe and a more risk averse approach to new programs impacted the launch of new programs”. EML is expecting “continued challenges” in the fourth quarter, which is the current quarter, leading to the reported downgrade of guidance.

The FY22 GDV guidance range was reduced from $81 billion to $88 billion, down to $79 billion to $84 billion.

FY22 revenue is now expected to be between $225 million to $235 million, down from $230 million to $250 million.

Underlying overheads are expected to be between $106 million and $109 million. That’s a tightening from the previous guidance of between $103 million to $112 million.

Underlying NPATA guidance is now $27 million to $30 million. The previous guidance was a range of between $27 million to $34 million. That compares to FY21’s underlying NPATA of $32.4 million.

The gross profit margin is expected to be around 69%. This guidance wasn’t changed but it would represent an increase from 67% in FY21.

EML is planning on a number of operational initiatives to drive a recovery in Europe in FY23.

Spotlight on insider sale

There has also been media attention on EML Chair Peter Martin selling 200,000 shares a few weeks before the update, which has seen the EML Payments share price subsequently plunge.

The Australian was not able to establish reasons for the sale of shares after seeking comment. The newspaper was told Martin was “offline with a case of COVID-19”.

EML share price snapshot

Since the start of the year, the EML share price has fallen more than 50%.

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 Block, Inc. and EML Payments. The Motley Fool Australia owns and has recommended Block, Inc. and 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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