clear path to $80 million ebtda by 2022/23

I made some comments in my previous post on where I think EML earnings can end up in 3 plus years. so I feel like I should provide some clarity on how I get there and why when we break it down it is not pie in the sky aspiration.

start with 2019 and guidance is 28 million but I explained in previous thread why I believe they are closer to 30 than 28 million profit. with FEC acquisition costs included let us be conservative and agree on 29 million.

going into 2020 and we have the addition of FEC 4.1 million earnings but they have been growing at 25% pa so we can safely assume 4.5 million for next year. we then add an expected 1.5 million from an initial ramp up of the smart group contract (assuming 2 million revenue here at 80% margin) and we have a starting base of 35 million ebtda for 2020.

we also have seen consistent organic growth from existing client base across the years. assuming a modest 10% growth on the $8 billion gdv processed this year and we get an incremental $8 million revenue (1% revenue margin) at 80% gross margin yielding $6.5 million. assuming a generous 10% cost growth on the $40 million expense base for 2019 and we get an incremental $2.5 million ebtda for 2020.

that takes us to $37.5 million next year. finally EML is consistently signing up new small and large clients every year where every small program is a minimum $150,000 revenue or more. we know they are launching several large programs across European and US gaming markets so assuming an additional $300 million gdv for new business or $3 million revenue is again highly conservative.

that gets us to $40 million base case ebtda next year alone.

if we now apply this same methodology on its current but growing gdv organic growth rate and assume modest but growing new business revenue from further penetration in the gaming vertical overseas, smart group and other new Salary pac client wins, and we deduct a generous $5 million of additional costs every year and it's clear to see how we can achieve approximately $10 million incremental earnings in 2021 and 2022.

that gets us to $60 million earnings for 2022.

by then each year the business will be spinning off huge amounts of free cash which should build up and gather up on the balance sheet even after paying dividends every year.

by 2022 it is highly likely management would have identified another one large or several small bolt on acquisitions that can all add up a further $20 million of earnings. (assuming 10x multiple paid we get $200 million worth of deals financed thru $100 million debt, $50 million from cash, and the rest equity earn outs)

finally that gets us to what now may seem to some, a very ambitious target of $80 million profit by 2022.

apply 25-30x multiple for that kind of growth and quality of earnings and we see a possible path to $8-$10 share price at some point.