Really good analysis and questions here. Of your five points the only one that I think about is the organic growth - always a concern, frankly - but I feel like it is covered.
1. Yeah it's not straightforward. The competitive advantage is financial processing at scale, and the infrastructure that they possess & have invested in. They do not do anything that PayPal, Tyro / a bank, or any other finance company couldn't do - but they have the infrastructure to handle the loading & reloading of cards, processing of transactions, etc. I don't know how much valuable IP is in there, but it isn't cheap for a competitor to implement and then achieve sufficient scale to be successful. They take a fairly small cut of the transactions that take place using these cards which presumably deters potential competitors.
2. Each of the business lines has a very different margin. Gift and incentive cards apparently have fewer transactions, plus the significant issuing cost (there's a fee when you buy the card). Reloadable cards are a small margin only, although much higher volume. Virtual account numbers are even smaller margin but presumably have lower overhead. The margin has been slipping due to (a) moving focus from G&I to a more balanced portfolio, and (b) the recently acquired PFS business having much lower margins due to outsourcing their transaction processing. Of these, (a) is inevitable and (b) will be resolved over the next ~2 years.
3. Yes. Not much growth in the G&I business anyway, which is a big reason for the focus on Reloadable. Two things here: (1) as a B2B service, any growth in their client's business also contributes to growth in EML's business. For example when they work with BNPL providers, if or when those providers grow so will EML's dollar volume and therefore revenue. and (2) the PFS acquisition really adds gravity to the Reloadable business, and gives a good footprint in the EU. There should be more growth in both this vertical and this region, things like government payments, salary packaging, etc.
4. Yes, but I bought after the capital raising so it's old irrelevant news for me. Sorry!
5. I don't know; it doesn't bother me to see this on the balance sheet, I'm not an accountant, “¯\_(ツ)_/¯“ Of course EML make money on the interest earned, however small, on these funds. They really are assets and liabilities. I don't know how credit cards are managed on bank balance sheets, but I've just checked and Commonwealth Bank definitely shows their outstanding loans as assets and customer deposits as liabilities.
Lots of growth opportunities here, and a well run, innovative, technology based business at a much more reasonable valuation than most other tech stocks. I still like it.
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