1H 2020 Results - The good & The Bad & The confusion

Finally had a chance to read through the EML thread here and boy, it seems everyone is all over the place !!

So here is my personal view on the results:

The Bad:

- Cashflow conversion was weak but clearly explained by Rob. it happens from time to time. just go back to 1H 2018 results. 2H will make up for it.

- On the call they mentioned they lost a Canadian mall client. on the flip side they launched 150 new malls with Simon Group in the US and in Austria with ECE in January 2020. Just keep that in context !!

- Interest rates here and abroad lowered which reduces interest earned on stored value float. not much we can do about that.

The Good:

- Guidance excluding PFS was tightened slightly with the midpoint now $41 million compared to $40.5 million before. you don't need a degree in mathematics to work out based on historical split (53/47 last year) that they will end up at $42-43 million eventually.

- EML new client wins are good and the business has good momentum going into the 2H and next year. new vertical in lottery payouts could be something huge overtime if it catches on. Paycontrol (merchant delegation) pipeline is Massive !!

- VANS going gangbusters and just added on another large client.

- Gross Margins are up to 76% and should hit 80% within 18+ months !!

- Acquisitions in North America are still possible later this year.
- PFS is ahead of forecasts and winning significant clients since acquisition was announced !!

- PFS Calendar year 2019 ebitda is at $23 million already. the forecast at the time of the acquisition was for $24 million in FY2020. this implies PFS is way ahead of forecast. most likely will report $26-$28 million for FY2020.

The Confusion:

- PFS regulatory approval for acquisition was always minimum 90 days. so the earliest is March 1st. nothing has changed. but it could also take 120 days. it could also take 99 days. you get the drift! Tom reiterated it is all business as usual. Government regulators always take bit longer to get things done.

- Market Consensus from the broker community for FY2020 included some contribution from PFS. each broker took a guess when the deal will be approved and added that contribution to EML standalone guidance. But because EML does not know yet the exact timing of approval, it can only confirm guidance for the standalone EML business. so obviously the brokers who publish their forecasts did not think this through and created a false sense that the company missed consensus.

Conclusion:

Anyone that actually understands the EML business should be across all of this. unfortunately many institutional investors in this country are just lemmings or more accurately - glorified momentum traders.