EML Chart, page-959

Mentioned in DMX Aust Fund Jan Report as a new holding

EML Payments

EML is a leading provider of payment solutions with its origins in providing prepaid shopping mall cards, and expanding into various niches including reloadable cards, payment solutions to replace US cheques, and into the emerging open/digital banking space. EML Payments can be thought of as providing the piping or back-end of its various financial services. Once EML sets up a programme with a client, it typically “clips the ticket” on transactions which provides a long stream of consistent revenues as the programme gets to scale.

Growth has historically been strong with a combination of acquired and organic growth. In FY21, EML cited 34% organic growth in its key reloadable card segment while prepaid gift cards were flat as malls have been impacted by COVID. With the world slowly reopening, EML is well-positioned to capitalise on increased in-store activity.

In addition to slower growth due to COVID, EML’s shares have been hit by uncertainties around regulatory risk – in particular, an on-going (though hopefully soon-to-be-resolved) investigation by the Central Bank of Ireland. We believe the market’s focus on short-term operating softness together with an over-focus on regulatory action has weighed on its share price, which has fallen from over $5 to $3. In our estimation, at these levels the market is failing to recognise the long-term growth potential at high incremental margins. Further, as a collector of cash ahead of paying funds out (through its prepaid/voucher-like services), the company holds considerable float which earns ~0% interest but may in the years ahead offer a powerful earnings tail-wind as interest rates potentially increase.