Shares in EML Payments Ltd (ASX: EML) closed the day at $2.52 apiece on Thursday after a 7% gain on the day. They are currently up a further 0.79% today at $2.54.
After a difficult start to the year, during which shares have collapsed 22%, the trend reversed this week when prices bottomed at $2.22 and snapped back to current levels.
Now it seems market pundits are backing the company once more after it released a key announcement on Wednesday advising on its expansion into the employee benefits market (EBM) in Europe.
So have we hit a bottom in EML? Or is this just a fake-out that will result in more losses further downstream? Let's take a look.
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EML enters European market
The latest catalyst to move the EML share price is the company's entrance into the EBM in Europe to cover meal vouchers and employee benefit solutions with Up Spain.
"Globally, the EBM is worth over $88 billion and is expected to grow by $20 billion between 2021 to 2025. Europe represents 35% of this market, or in excess of $30 billion per annum, making it one of the largest prepaid verticals in Europe," the company said.
Within Europe, Up Spain has more than a million users and around 4,700 corporate clients, including a network of over 30,000 restaurants in the country.
"This contract with Up Spain is a milestone agreement for us given the size of the EBM and the continued transition of meal voucher programs transitioning from physical vouchers to digital payment solutions," said EML Group CEO Tom Cregan.
The program is expected to go live in Q1 FY23, but the group doesn't expect the full impacts of the deal to be felt until some time afterwards.
What does this mean for the EML share price?
Investors originally had a fairly muted response to the update, while others appear more constructive on the news.
Several brokers were quick to jump in on the conversation. UBS analysts said the deal gives EML a good base to enter the segment, retaining its $4.55 valuation in a note to clients.
It also said EML could optimise its platform to suit the market, while opening the door for further opportunities downstream.
Meanwhile, analysts at Ord Minnett said the deal only adds further weight to its investment thesis on EML, that earnings are about to bulk up for the payments company.
In a recent note, the broker said the deal's impact won't be felt until after FY23, but that's actually a good thing, as it offers a long-term opportunity.
It values EML at $4.03 per share, slightly off the consensus price target of $4.09 per share.
Ron Shamgar, head of Australian equities at TAMIM Asset Management (which owns EML shares) said on Twitter that the deal "is a big win for [EML], as they enter a new vertical they already dominate in Oz!"
"Up Spain is huge and in Spain alone the opportunity is $3–4B [billion] and over time $30B+!!" he added.
"Investors don't seem to care but future growth prospects only just got bigger and better".
According to Bloomberg data, each of the nine analysts covering the firm advocates it as a buy right now. That number is consistent with the same time last year.
Following the EBM announcement, EML shares have started to climb once more, up 2.6% on Wednesday and 7.2% on Thursday.
However, it remains to be seen if EML has resurfaced from the depths entirely, as only time and market fundamentals will tell at this point.
In the last 12 months, the EML share price has fallen more than 52%. It is also down more than 11% over the past month.
