EML Payments (EML) | Shop dropped, but the gift horse is back at starting gate
Trading update – to end 3Q20: EML has provided headline numbers for the first nine months of FY20, which can now be compared to the most recent release which was for the eight months to end February 2020. Major line items: 1) gross debit value of A$9.83bn (+55% pcp) versus A$8.71bn at end February 2020; 2) GP margin of 75.9% – unchanged from the February data, but higher than 73.7% for the pcp; 3) revenue of A$87.1m (+20% pcp) versus A$79.6m (+34% pcp) at end February 2020; and 4) EBITDA of A$27.0m (+24% pcp) versus A$25.3m (+34% pcp) at end February 2020.
April 2020 commentary: 1) G&I GDV of A$31.4m (-53% pcp) due to global mall closures – EML has described April as the low point for its G&I business in terms of the impact of COVID-19; 2) General Purpose Relatable (GPR) GDV (ex- the PFS acquisition) of A$286m (+26% pcp) due to strong growth in salary packaging and resilient flows in gaming; 3) VANS GDV of A$613m (+9% pcp) with EML citing minimal impact from COVID-19; 4) PFS – EML cited GDV in April in line with January/February 2020, although mix was adversely impacted by lower volumes in more profitable multi-currency and digital banking in Spain and France due to lockdowns; 5) unaudited group EBITDA for April 2020 (including PFS) of A$2.7m, including A$2.2m in breakage accrued in 1H20; and 6) EML had cash on hand at end April 2020 of $125m.
Changes to forecasts: Downgrade to FY20 EBITDA forecasts by 8%, with nominal changes thereafter. EML has recorded YTD EBITDA of A$29.7m with two months to run in FY20. Whilst we anticipated weakness in G&I, we had not contemplated the impact of lockdowns in Spain and France on revenue margins in PFS which we do now. Our modelling assumes a gradual improvement in G&I revenue rather than a sharp recovery – current mall traffic remains down globally despite re-openings.
Investment view: BUY retained with revised DCF valuation of A$4.29 (prev. A$3.97) and price target of A$4.30 (prev. A$3.95). Today’s update serves to reduce the estimation of FY20 earnings risks and emphasises that EML is proving to be a very resilient business which has built a number of different revenue streams globally beyond its traditional G&I card base. FY21 will now see a full-period inclusion of PFS, which should benefit from the easing of European lockdowns with A$6m in acquisition synergies to flow from FY22. EML has several growth levers and will clearly benefit from the return of global sport. We also expect the post COVID-19 period will see the acceleration of the shift from physical cards to digital wallets. The major investment risk is any widespread reversal of easing COVID-19 restrictions. Click here to read full report