News: Emerchants deal hints at strong international upside

Prepaid financial card products and service company Emerchants Limited (ASX:EML) latest deal with Cash Converters International (ASX:CCV) has reflected client building ability at a time when the company is beginning to target perhaps even greater marketing sectors.

Emerchant’s new multi-year deal with CCV will involve the use of Emerchants cards to disburse cash advance loan funds to both in-store and online customers. This is planned to be fully implemented in November.

The deal will result in the largest provider of cash advance loans in Australia committing to Emerchants products 95 of its 150 store nationwide and bodes well for investors watching Emerchants’ capacity to expand into new markets, including the massive European online gambling industry. 

Emerchants is targeting the acquisition of new customers in European gambling as part of strategy to expand its revenue base on the continent with retail customers.

The UK/European online gambling market is several times the size of the Australian market.

Capping a successful year of growth was reflected in key metrics with revenue growing 178% from $5.18 million  to $14.4 million in FY2015 and EBITDA of $2.63 million, an increase of $6.0 million or 179% versus the prior financial year.

The business is able to scale as shown in  conversion of incremental revenue into EBITDA.

Other operational priorities for Emerchants in FY2016 include the launch of supplementary re-loadable programs in the gambling and consumer lending segment as well as continued investment in business continuity planning in preparation for the 2015 Spring Racing season.

The company expects to have ten times the number of active gambling winnings cards in market in 2015 versus the 2014 Spring Racing season.


Analysis

The move to a formal agreement with CCV after a trial run in 24 stores last year demonstrates the operational benefits of the company’s technologies in terms of efficiency, the benefit of financial inclusion and improved financial management.

CCV operates more than 700 stores in 21 countries, and therefor represents a customer that provides upside in expanding Emerchant’s international footprint. This footprint already includes mall gift card programs with MFI (Germany, 25 malls) and Hammerson (UK, 11 malls) as well as a mall program for Value-Retail Inc. (8 malls, 5 EU countries).

The European market is more than ten times the size of the Australian market and is predicted to reach US$394 billion (A$549 billion) in prepaid payments volume by 2020.