The EML Payments Ltd (ASX: EML) share price is rated as a buy by multiple brokers, suggesting it could be a smart buy.
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Which brokers like the EML Payments share price?
The payments business recently released its FY21 result and a few different brokers decided it's a buy after seeing that report.
UBS is one of the brokers that likes EML, it has a buy rating on the business with a price target of $4.80. That means the broker thinks the EML Payments share price could rise by around 15% over the next 12 months.
The brokers at Macquarie Group Ltd (ASX: MQG) also believe the EML Payments share price is a buy, with a price target of $4.55. That means Macquarie thinks the business could see a rise of around 10% over the next 12 months.
What are the brokers looking at with EML Payments?
There were two factors that brokers focused on: the FY21 result itself and the issues with the Central Bank of Ireland (CBI).
Both Macquarie and UBS thought the FY21 result was good.
EML Payments reported a number of financial measures that increased by strong double digit numbers.
Gross debit value (GDV) went up 42% to $19.7 billion, helping revenue rise by 60% to $194.2 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 65% to $53.5 million. The underlying profit (NPATA) rose by 54% to $32.4 million. Operating cashflow grew by 121% to $48.8 million. The cash at the bank also rose by 19% to $141.2 million.
The revenue for two of its segments – gift and incentive, and virtual account numbers – were largely flat.
The general purpose reloadable (GPR) segment saw substantial growth. GPR is used for things like banking as a service, software as a service, neo lending, multi-currency, government and non-government organisations.
GPR revenue grew from $41.9 million to $113.5 million and the yield increased from 99 basis points to 117 basis points. PFS was consolidated into the group results for a full 12 months, contributing $78.3 million. EML contributed $35.3 million of revenue, representing growth of 34% year on year. Gaming payout programs grew in all markets and revenue rose 87%.
CBI's impact on the EML Payments share price
On 19 May 2021, the business told investors that the regulator CBI raised significant regulatory concerns about its Irish regulated subsidiary, PFS Card Services. The concerns related to anti-money laundering and counter-terrorism financing, risk and control frameworks and governance.
That correspondence stated that "CBI is minded to issue directions". EML warned that these directions could materially impact the European operations of the PFS business, including potentially restricting its activities under the Irish authorisation. EML estimated that approximately 27% of EML's global consolidated revenue was derived from Irish authorisation.
The EML share price fell 46% in response to this news. But it has risen 47.5% since then.
UBS noted that it seems that EML is going to keep its licence after the company's update and the progress it has made is a plus point for the business.
EML has "incurred or provided" for $11.4 million of costs in relation to professional fees, remediation and other potential costs with resolving this matter. EML expects the remediation plan to be substantively complete by the end of the 2021 calendar year.
