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EML Payments Ltd (ASX: EML) is on the radar for investors as Morningstar highlights its improved positioning for earnings growth compared to the past three years. With a retained price target of AU$1.05 for the payment solutions platform, Morningstar suggests that shares appear "mildly undervalued," offering potential opportunities for investors.
The wind-down of reloadable cards business PFS Card Services Ireland Ltd (PCSIL) has unburdened EML's management from distractions, allowing them to focus on expanding the business. Morningstar emphasises the potential for revenue growth through new customer acquisitions and incremental volumes from existing customers.
Furthermore, cost-outs are expected to persist into FY25, which is anticipated to help stabilise earnings for EML. Morningstar forecasts EML's underlying EBITDA to average about AU$51 million per year over the four years leading up to FY28, compared to AU$37 million in FY23.
This analysis comes amid EML's stock experiencing a notable uptick, with a 24.7% year-to-date increase as of the last close. The market's response reflects growing confidence in the company's prospects and its ability to deliver value to shareholders.
The decision to wind down PCSIL signals a strategic shift towards optimising resource allocation and prioritising initiatives with higher growth potential. With management now able to devote their full attention to driving growth and innovation, EML is poised to accelerate its expansion trajectory.
The anticipated revenue growth from new customer wins and increased volumes from existing clients underscores the resilience of EML's business model. As digital payments continue to gain traction globally, EML stands to benefit from the increasing demand for efficient and secure payment solutions.
Moreover, the sustained cost reductions expected to carry into FY25 will further enhance EML's profitability and financial stability. By efficiently managing expenses while pursuing growth opportunities, EML is well-positioned to deliver sustainable earnings growth over the medium to long term.
