Company Reports

No-moat EML Payments’ fiscal 2024 results slightly exceeded our forecast, with underlying EBITDA rising to AUD 57 million from AUD 37 million in the prior year, beating our expectations by 3% and landing near the top end of guidance. The AUD 57 million includes the now-liquidated Irish reloadable cards business, PCSIL. Excluding PCSIL, EBITDA is AUD 49 million for the year.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

We believe no-moat EML Payments is better-positioned for earnings growth relative to the past three years, with the problematic Irish reloadable cards business, PCSIL wound down in January 2024, and regulatory compliance issues now resolved. Following the PCSIL wind-down, EML has repaid most of the debt associated with its reloadable cards subsidiary PFS, initiated the sale of its noncore digital payments business, Sentenial (expected to complete by the first half of fiscal 2025), and successfully applied for the removal of growth restrictions on its United Kingdom reloadable cards division, PFSL. Management is now unencumbered by distractions and can focus on expanding the business.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

We lift our fair value estimate for no-moat EML Payments by 5% to AUD 1.05 per share, following the agreement to sell Sentenial, a digital payment business, for EUR 32.8 million, or AUD 54.1 million, to online payment processing company GoCardless.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

No-moat EML Payments' first-half fiscal 2024 results marked a pivotal turning point after nearly three years of regulatory compliance issues. Underlying EBITDA more than doubled from the previous corresponding period to AUD 29 million, propelling EBITDA margins to 19.4% from 11.5%, supported by growth in recurring revenue across all segments and a boost in interest income from customers’ loaded funds.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

We lift our fair value estimate for no-moat EML Payments to AUD 1.00 per share from AUD 0.80, following the firm’s decision to wind down its troubled Irish reloadable cards business, PCSIL, with immediate effect. Our prior fair value estimate was based on an equal-weighted probability of either winding down PCSIL or retaining it, with the latter deemed significantly more value-destructive.

EML builds the infrastructure to allow payments via prepaid cards or in real-time. The firm makes money primarily via clipping payment transactions. It also earns fees from breakage, inactive accounts, cash establishments and interest from loaded funds.

We maintain our fair value estimate for no-moat EML Payments at AUD 0.80 per share. This is based on an equal-weighted probability of retaining its troubled European reloadable cards business. Shutting the Irish division, PCSIL would increase our fair value to AUD 1.00. Unfortunately, EML’s strategic review update raised more questions than answers. EML intends to focus on its profitable gift cards and reloadable cards businesses in Australia and the U.K., but there was no update on whether PCSIL will be kept or sold. We are surprised that EML is considering selling its real-time payments business, Sentenial, which could be to the detriment of EML’s future competitive position. Sentenial was acquired in late 2021 to enhance EML’s offerings beyond prepaid cards amid the evolving payments landscape.

We retain our AUD 0.80 per share fair value estimate for no-moat EML Payments. This is based on an equal-weighted probability of retaining its troubled European business Prepaid Financial Services in which case our fair value estimate would drop to AUD 0.60; or shutting PFS, which increases our fair value to AUD 1.00. Fiscal 2023’s underlying EBITDA of AUD 37 million was AUD 12 million above our forecast. However, this involved adjustments for remediation and restructuring costs deemed nonrecurring, which we doubt.