Is the EML Payments (ASX:EML) share price a buy?

Is the EML Payments Ltd (ASX:EML) share price worth buying. It's still down 37% from the pre-COVID-19 share price of $5.66.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The EML Payments Ltd (ASX: EML) share price has recovered a lot of the lost ground since the COVID-19 crash. It has risen by 168% since the bottom of March, however it's actually still down by 37% from before the COVID-19 crash.

What is EML Payments?

EML Payments is a business that offers a wide variety of payment services. It has general purpose reloadable offerings such as gaming payouts with white label gaming cards, salary packaging cards, commission payouts and rewards programs. EML Payments also offers physical gift cards, shopping centre gift cards and digital gift cards. Finally, it offers virtual account numbers.

What happened during the worst of COVID-19?

FY20 was a record year for EML Payments. It generated a record underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $32.5 million, excluding acquisition costs for buying Prepaid Financial Services (PFS). EML said that it had a strong financial performance during the first eight months of the year before COVID-19 impacted trading conditions. The physical gift cards were hit, though online retailers provided some offset.

EML said that it had signed and launched with major new customers in all its verticals with the sales pipeline momentum evident in all markets. In FY21 it's seeing more companies seeking digital payment solutions as part of a global trend to move away from cash payments.

What happened in the latest quarter?

EML Payments recently gave an update for the first quarter of FY21 for the three months to 30 September 2020.

It said that first quarter revenue was $40.6 million, up 75% over the prior corresponding period and it was 20% higher than the fourth quarter of FY20. It also said that its EBITDA of $10 million was up 215% compared to the prior corresponding period and up 69% compared to the fourth quarter of FY20.

Historically, the first quarter of the financial year is the weakest. Cost control initiatives helped reduce cash overheads by $0.7 million over the prior corresponding period, excluding PFS.

The gift and incentive yield was ahead of expectations at 5.98% due to improved trading in shopping centre programs. Trading through the three months to December is crucial to the results of this segment.

The general purpose reloadable yield was in line with expectations at 1.1%, the same as the previous quarter, with a stable program mix. Excluding PFS, EML grew gross debit volume (GDV) by 16% compared to the prior corresponding period, driven by Australian payroll and gaming payout volumes.

The virtual account numbers saw GDV recover in the FY21 first quarter, with growth of 23% compared to the fourth quarter of FY20. It was in line with the prior corresponding period.

In terms of other growth avenues for the company, EML Payments is expanding to include non-card payments and open-banking payments. It's going to invest $10 million to $15 million on its technology and platform over 2021 and 2022.

Is the EML share price a buy?

EML is currently rated as a buy by the Motley Fool Million Dollar Portfolio investment service.

According to estimates on Commsec, the EML Payments share price is trading at 24x FY23's estimated earnings.

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends EML Payments. The Motley Fool Australia owns shares of and has recommended EML Payments. 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.

More on Growth Shares

A young man looks at a stylised investment graph superimposed on an exterior office building backdrop.
Growth Shares

Where to invest $10,000 in ASX 200 stocks today

Analysts think these high-quality shares are in the buy zone for investors right now.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Growth Shares

Two ASX industrials shares with buy recommendations

One broker believes these growth shares are set to rise.

Read more »

Man smiling at a laptop because of a rising share price.
Growth Shares

I think these 2 exciting ASX growth shares are buys today

These stocks could deliver big returns.

Read more »

a man in a business suit and carrying a laptop stands smiling with hand in pocket outside a large office building in a city environment.
Growth Shares

Buy these 2 impressive ASX 200 shares in July: experts

Experts are bullish about these two businesses.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Growth Shares

3 ASX 200 shares set to dominate the next decade

Let's see why these shares could be great long term picks for Aussie investors.

Read more »

A group of businesspeople clapping.
Growth Shares

3 ASX growth shares with 10-year compounding potential

Let's see which shares are being tipped as buys for growth investors.

Read more »

Woman happy and relaxed on a sofa at a shop.
Growth Shares

Are these 2 top ASX growth shares buys?

Are these high-flyers still buys?

Read more »

Two university students in the library, one in a wheelchair, log in for the first time with the help of a lecturer.
Growth Shares

3 stellar ASX growth shares to buy with $7,000

Let's see why analysts are feeling bullish about these top stocks.

Read more »