EML Payments Newfound Love In Banking-as-a-Service Technology- PFS Acquisition

  • Nov 12, 2019 AEDT
  • Team Kalkine
EML Payments Newfound Love In Banking-as-a-Service Technology- PFS Acquisition

Strategic acquisitions are a vital expansion approach that lead to the growth of every business. The combined revenue, customer base, distribution network helps the business to increase its market size.

In today’s article, we are discussing information technology company, EML Payments Limited, and its recent acquisition, which has led to business growth:

EML Payments Limited (ASX: EML)

EML Payments Limited operates in issuance of prepaid payment services across Australia, Europe and North America.

Recent Acquisition: EML has entered into a collaboration to acquire 100% stake of Prepaid Financial Services Limited (PFS) at an enterprise value of $423 million, plus an earn-out component of up to $103 million. PFS is expected to process $5.3 billion GDV while the business is expected to generate a net revenue of $84 million followed by EBITDA of $24 million in FY20.

The upfront acquisition enterprise value represents 17.5x PFS’ FY20 EBITDA pre-synergies and 14.0x PFS’ FY20 EBITDA post ~$6 million of net run-rate synergies. Under the entitlement offer, eligible shareholders are invited to subscribe one EML share for every five existing EML shares (to be held on 13 November 2019) at a price consideration of $3.55 per EML share.

Placement and Entitlement Offer: On 11 November, EML informed regrading the issue of 18,824,660 new shares pursuant to the terms of the placement to new and existing institutional shareholders under a placement at a price consideration of $3.55. Further, the company announced that it issued approximately 51,091,614 new shares under the Entitlement Offer.

Acquisition Rationale:

The above acquisition would be beneficial for EML, as it would take advantage of its entry to the new geographies. Volume-wise, both companies are likely to deliver improved GDV.

Leading Global Player: Post acquisition, the combined group would position EML to become one of the biggest FinTech companies in prepaid business and digital banking, worldwide. As per the Management estimates, the group is expected to process in aggregate ~$18 billion GDV in FY20.

Broadens Solution Suite: The business is expected to add digital banking and multi-currency offerings to EML’s solution suite with the ability to cross-sell PFS’s digital banking and multi-currency offerings into EML’s product portfolio.

Customer Diversification and Revenue Mix: The recent collaboration is expected to deliver diversified client base to the business which may lead to shift in segment mix on a net revenue basis. The business would be able to penetrate eight new geographies and further enter into the UK, France and Spain.

Operating Leverage: The acquisition is likely to generate higher scale of operation to its European segment in coming years.

Financial Estimate: The acquisition is expected to aid a net revenue growth of more than CAGR of 25% from FY18 to FY20 along with an expected EBITDA margin of ~30% during FY20. While pro forma EPSA accretive for FY20 is expected to grow at a rate of at mid teen on percentage terms.

About Prepaid Financial Services Limited: PFS is a service provider of various payments and digital banking capabilities, e-wallets and payout and distribution programs. It also offers regulatory Electronic Money Institution status and flexible software, aiding financial and non-financial institutions to provide feature-rich transactional payment and banking services to their end-users, without being tagged as a regulated entity. It operates across 24 countries and deals in more than 26 currencies. The primary clients of PFS include blue-chip financial institutes, NGO’s, non-financial corporates, SMEs, FinTech firms and public sector.

FY19 Financial Highlights for period ended 30 June 2019: EML announced its full-year FY19 results wherein, the company posted total revenue of $97.2 million, up 37% from FY18 followed by a NPAT of $8.45 million, reporting a strong growth of 283% from the previous financial year. The company witnessed revenue growth in all segments through organic and acquisition growth.

EML’s Gross Debit Volume (GDV) during FY19 was $9.03 billion as compared to $6.75 billion. During the year FY19, EML reported EBITDA at $29.1 million, up 40% over from previous financial year. Operating cash inflows stood at $22 million during FY19. The volume was driven by growth across gaming segment in European and North America.

EML’s Financial Highlights

EML’s Financial Highlights (Source: Company Report)

Gift and Incentive grew during the year driven by expand mall programs and use of instant gift. The above growth came out higher than management expectations of $4 million revenue for the full year, with rapid growth of customers using our enhanced processing service

Earlier Acquisitions: During the year, the company acquired and integrated PerfectCard DAC, transitioning to self-issuance in Europe and utilising Irish e-money licence. PFC exceeded acquisition case for year one (securing its Brexit strategy).

EML also acquired Flex-e-Card group, confirming the company’s position as global leader in the shopping mall segment servicing over 900 malls followed by Signed and launched major German malls customer, ECE.

It entered the North American sports betting market, in New Jersey, with Pointsbet , launched during January 2019 and bet365, expected to launching in early FY20 which will be a five to ten year growth driver for EML.

Outlook: As per the CY19 guidance, for the twelve months to 31 December 2019, PFS’ gross debit volume is expected to be £2.5 billion followed by a net revenue of £40 million. Gross profit and EBITDA are expected at £24 million and £12 million, respectively.

EML remains on target to provide 28%-43% growth in EBITDA. Excluding PFS, the FY20 revenue guidance is expected within the range of $116 million to $132 million while FY20 EBITDA guidance ranges at around $38.5 million to $42.5 million. EML expects FY20 NPATA range to be $26.2 million to $29.4 million followed by FY20 operating cash flow guidance range at 70% to 80% of EBITDA.

Stock update: EML quoted $3.83, with no change as on 12 November 2019. The stock has a market capitalization of $978.4 million and has made a 52-week high of $4.67. It has generated returns of 29.39% and 85.92% in the last three and six-months, respectively.


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