The EML Payments share price skyrocketed 200% in 2019. Could 2020 be even better?

Despite its shares surging over 200% higher in 2019, I think the best may still be yet to come for payments provider EML Payments Limited (ASX: EML).

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By anyone's standards, 2019 was a great year for EML Payments Limited (ASX: EML). Shares in the payment solutions provider skyrocketed over 200% higher, with the EML share price starting from a little under $1.50 at the beginning of 2019 to end the year fetching more than $4.50.

At one point in late November, EML shares were even trading at an all-time high of $4.84. And just to cap off its meteoric rise, it was announced in early December that EML would be added to the S&P/ASX 200 (INDEXASX: XJO) at the expense of Bellamy's Australia Limited (ASX: BAL), which was acquired by Chinese dairy company China Mengniu Dairy Co Ltd.

What exactly does EML do?

For the uninitiated, 'payments solutions' can sound a little vague and esoteric. But EML's business is actually pretty simple.

Broadly speaking, EML operates across 3 key segments. The first is what the company calls 'general purpose reloadable'. These are branded cards that can store customer account credit – for example, the cards online bookmakers like Ladbrokes, Neds and BetEasy often use to transfer betting winnings to their customers.

The second category is branded gift cards. EML is currently the largest provider of shopping mall gift cards in the world. It works with business clients to help deliver tailored solutions and provides a suite of reports to help its clients track the effectiveness of their customer rewards programs.

The third business segment is 'virtual account numbers'. Virtual account numbers are a more secure way of facilitating payments between business clients and their suppliers. The payment is made using a unique, single-use card number that can be faster and more efficient, while also meaning clients do not have to regularly communicate their real account numbers.  

What caused the steep rise in the EML share price?

The EML business delivered strong financial results across the board in FY19, exceeding even its own guidance. Year-on-year revenues increased by 37% to $97.2 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) surged 40% higher to $29.1 million.

And although EML has made a number of strategic acquisitions, 68% of the FY19 uplift in EBITDA has come organically from the company's core business. This is a great sign for the health of the underlying business, especially after fellow tech market darling WiseTech Global Ltd (ASX: WTC) was accused earlier this year (in the now infamous J Capital reports) of relying too heavily on revenue through acquisitions to prop up its growth narrative.

Should you invest?

Despite the massive gains already made in 2019, I think that EML can still reward new investors in 2020 and beyond. According to its 2019 AGM presentation, the company has already started this financial year strongly, with first quarter FY20 revenues up 35% versus first quarter FY19 to $23.2 million. Full year guidance is for EBITDA in the range of $38.5 million to $42.5 million, which would mean year-on-year growth of up to 43%. This sort of bullish outlook sends a strong signal to the market that EML is a company that still has a long growth runway ahead of it.

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Rhys Brock owns shares of WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended Emerchants Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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