Feb 28, 2024

Sentiment: Sideways

Type of Trade: Aggressive, High Growth, Speculative

Industry: Information Technology Services

Sector: Information Technology

EML Payments Ltd is engaged in the provision of prepaid payment services. Its combined portfolio offers payment technology solutions for payouts, gifts, incentives, rewards, and supplier payments. The group operates in three segments: Gift & Incentives, General Purpose Reloadable, and Virtual Account Numbers. The company helps business all over the world create high level of customer experiences.

EML is operating in 32 countries with significant recurring business model and sustainable growth.

  • Gift Card Operation includes incentive gift cards not only exploited in shopping malls market buy also very popular in the corporate cards for employees in 27 countries.
  • Government Payments in Europe, including distribution of wealth far and funds to people.
  • Digital banking ecosystem with expansion into Open Banking through Nuapay, which allows the company to take advantage of immediate opportunities in the UK & Europe.
  • Successful prospect on investing in technology and more developments on the pipeline.
  • Most of its expansion was made through low risk acquisitions of other businesses, in order to buy other technologies and expand its footprint in different markets, except by the acquisition of the PCSIL that has become a problem due very tight regulatory issue by the Central Bank of Ireland.

The PCSIL business was burning a lots of cash due a required remediation program that has been underway sincde 2022. Furthermore, CBI has proposed that certain limits be applied to programs that, if implemented, have been having a negative impact on the PCSIL business, as stated in the company’s last announcement, which will temporarily cease any new program in UK until the the group has decided to wind off the whole PCSIL business in January 2024. Thanks to this issue, EML reported a $284 million net loss for FY23 with huge legal costs and cash burning during the period.

✅ On January 18, 2024, the recently constituted EML Board made the decision to exit the PCSIL business by initiating a winding-down process for the entirety of the PCSIL operations. This winding-down of the PCSIL business marks the conclusion of a period characterised by significant earnings losses, cash burn, and management distraction resulting from the operation of PCSIL thereby limiting EML’s exposure to $20 million cash outflow, being the repayment of inter-company balances, and $25 million non-cash impairment to EML’s FY24 financial accounts, representing the removal of net assets of the PCSIL business and any associated intangibles.

✅ Following the conclusion of the liquidation and repayment of the intercompany balances, EML expects free cash flow to materially improve during the upcoming financial years. We believe that exiting PCSIL is the turnaround strategy for EML to become profitable or near it in the upcoming Financial Years, not in FY24.

1H FY24 Update

EML has improved in most of key financial metrics in relation to FY23.

Statutory (NPAT) Net Profit After Tax of (-$12.4m), 119% up from previous year (-$129.9m)

Revenue increased 30% to $150.7 million.

Underlying EBITDA increased 119% to $29.3m driven by revenue growth, partly offset by higher overhead costs.

🚩 Underlying overheads increased 25% on 1H23 (13% on 2H23) due to embedded run rate. Nevertheless, 2H24 overhead costs (ex PSCIL) expected to be lower than 1H24 (by 5% to 10%) as reduction actions embed in the business and streamline the company’s costs.

🚩 Impairment expense of $9.3m was recognised in 1H24 in relation to PCSIL following assessments of recoverability of customer contracts and software assets.

Cash increased by $5.9m from June 2023 (8%) reflecting strong operating cash flows partly offset by remediation and restructuring costs.

Segment performance

✅ Gifting

🚩 General Purposes Reloadable Cards

Digital Payments

✅ EML benefits as interest rates rises due to the company’s large Stored Value Float. (As at 31 December 2022, EML held an equivalent of $2.9B in its stored float, $2.3B of which was held in cash and further $.06B in highly rated, low-risk bonds.

During FY22, EML generated net income of $1.4m, but since central banks have continued to move higher during FY23 and 1HFY24 across all regions, the revenue has dramatically increased, and interest income is a core part of EML’s revenue mix.

Interest revenue has increased to $34.7m reflecting improved market rates, higher float
values and result of active optimisation activities to improve earned yields.

Group (excl PCSIL) comprises approx. 63% of total interest revenue balance,, with largest contribution from PFSUK businesses.

✅ Positive underlying operating cash flow of $20.8m

Based on the information provided, the company appears to be cash flow positive, as it generated a net cash increase during the specified period. Additionally, the extension of the syndicated debt facility suggests a positive outlook regarding debt management.

However, it’s important to note that a portion of the underlying EBITDA is allocated towards remediation, restructuring costs, taxes, and interest payments, which impacts the net operating cash movement. Despite this, the company is still able to generate positive cash flow and appears to be managing its cash, EBITDA, and debt facilities effectively.


Underlying EBITDA guidance for FY24 is $52m-$58m with annual underlying EBITDA margin expansion FY23-FY26 from 4-5%.

The report did not mention the statutory EBITDA projection.


If you had purchased EML shares as an investment 12 months ago, you would now be up by 60% on your investment, demonstrating EML’s strong performance over the past year despite various challenges affecting the stock price, primarily stemming from issues with the PCSIL business during that period.

With the PCSIL business being wound off, it appears that the worst may be behind EML. Currently trading at a technically fair price, EML still presents an entry opportunity at fair value according to the BGS 20 Strategy.

The current trading range for EML is between 80 cents and $1.2. Improved fundamental results could potentially catalyse a breakout above the $1.2 resistance level in the short to medium term.

RSI is indicating a bullish conversion that is generally is positive sign, especially if combined to strong volume to the upside. A trade for 20–40% profit could take a little bit of time as the stock consolidates sideways, and needs to be bought at the right entry level.

Should I Buy (ASX: EML) Now?

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