EML share price crashes 18% on half-year results but quickly rebounds

EML shares are being punished after the company reported a 95% profit decimation.

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Key points

  • The EML share price took a severe tumble in early trading after the company released its 1H FY23 results
  • However, the ASX tech share is rebounding quickly as investors digest the reasons behind the 95% profit decline 
  • EML is investing heavily in its transformation strategy to turn the company around 

The EML Payments Ltd (ASX: EML) share price took a severe tumble in early trading after the company released its 1H FY23 results.

The EML share price opened at 56 cents, down 12.5% on yesterday's close. It quickly declined to an intraday low of 52.5 cents shortly after the market open.

However, the ASX tech share rebounded quickly and is now trading at 60.2 cents, down 6% for the day.

While the headline news is bad, revenue and gross profit are both up. The company's net profit decline is largely due to investment in its transformation strategy and non-cash impairments.

Let's take a look.

EML share price dives after 95% profit decimation

The key points for the six months ending 31 December 2022 are:

  • Group revenue of $116.6 million, up 2% on the prior corresponding period (pcp) of 1H FY22
  • Underlying gross profit was up 5% pcp but group underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $13.4 million was down 50% pcp
  • Group underlying net profit after tax, adjusted to exclude the non-cash tax-effected amortisation of intangibles and significant non-operating items (NPATA) of $700,000 is down 95% pcp
  • Group net loss of $129.9 million, largely reflecting non-cash impairments
  • Cash balance up 7% to $79.2 million pcp
  • Underlying operating cash flow conversion of 102%

Management said revenue was up largely due to a significant increase in interest income at $7.1 million.

Benefits stemming from the Sentenial acquisition were behind a 55% boost to gross debit volumes at $49.4 billion. The 5% increase in gross profit was driven by increased high-margin revenues from Sentenial, plus interest.

The halving of group EBITDA was largely reflective of further investment in the European businesses.

What did management say?

EML group CEO Emma Shand said:

Underlying financial performance for the half was in line with expectations reflecting the heavy set of challenges that the company has faced over the past two years and reinforcing the importance of our transformation strategy.

During the half, we have focused on getting the foundations right and have made solid progress on our remediation program, Elevate, which we have committed to completing by the end of December 2023, as previously announced.

What's next?

EML is continuing with the execution of its transformation strategy.

EML announced its transformation plan at its annual general meeting in November 2022. Investors responded favourably to the plan at the time, with the EML share price leaping 12% on the day.

The plan is to make EML a leading payments provider in four key segments over the next five years: human capital management, financial services, retail and gifting, and government.

The company said progress over the half included further work on its remediation programs in Ireland and the United Kingdom, which are expected to be completed by the end of December.

EML launched a new data platform in January to support Elevate and move toward a single source of data. It also introduced a new product suite campaign in the human capital management segment.

Shand said:

We have a strong balance sheet and a clear transformation path ahead of us and are well positioned to execute EML's next chapter and deliver on our commitment to be an embedded finance leader of the future."

The company reaffirmed its guidance for underlying full-year EBITDA of between $26 million and $34 million but altered guidance on revenue and costs.

Revenue expectations are now between $235 million and $245 million based on the first-half results and an expected upswing in interest.

Underlying costs are expected to be lower and in the range of $133 million and $140 million.

EML share price snapshot

The ASX tech share is down 0.8% in the year to date compared to a 4.8% bump for the S&P/ASX All Ordinaries Index (ASX: XAO).

Over the past 12 months, EML shares have fallen 75% compared to a rise of 0.7% for the All Ords index.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments. The Motley Fool Australia has positions in and has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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