EML Payments shares plunge 36 per cent as cashflow guidance wanes

EML Payments shares plunge 36 per cent as cashflow guidance wanes

A headline 408 per cent jump in gross dollar volume (GDV) to $4.7 billion was not enough to distract EML Payments' (ASX: EML) shareholders from a massive 30 percentage point fall in operating cashflow guidance for FY22, with results that sent the share price into free fall today. 

The Brisbane-based payments and gift card company has experienced its fair share of double-digit daily share price falls since the Central Bank of Ireland (CBI) raised regulatory concerns in May last year that threatened a large chunk of its European operations, but today's 36 per cent fall was due to disappointing numbers in a highly competitive market. 

On 19 May 2021 the group lost $800 million in market value. Today its market capitalisation has shrunk by $360 million at the time of writing, downgrading EML from its long-held unicorn status.

The total movement of money facilitated by EML received a shot in the arm in the third quarter from the acquisition of Sentenial - owner of the Nuapay brand - as well as new contract signings, also bolstering revenue by more than a fifth to $59.8 million. However, this was greatly overshadowed by a spike in costs.

In a presentation, EML Payments reported gross profit margins have been impacted by a higher COGS (cost of goods sold), predominantly higher negative interest and lower establishment fees in Europe. This meant underlying overheads rose by 50 per cent in the quarter.

Meanwhile, underlying EBITDA was down 14 per cent to $13.6 million - a figure that whittles down to zero if you include one-off overheads connected to the CBI matter expensed in the period.

Earlier this year EML Payments slated a $10.5 million provision for legal costs in relation to a class action brought by Shine Justice (ASX: SHJ) over its handling of reporting European regulatory issues to the ASX.

The company has downgraded its guidance on most financial metrics for FY22, including an 8 per cent cut in the EBITDA forecast to $52-55 million, although the most drastic is a nosedive in operating cash flow - a figure previously flagged as 80-90 per cent, but now down to 50-60 per cent.

"Operational execution issues in Europe and a more risk averse approach to new programs impacted the launch of new programs. We now anticipate continued challenges through Q4 which has led to a reduction in the guidance range," the company reported.

"Deterioration in current FX forecast rates from the prevailing rates in mid-February are driving approximately $1.5m of the guidance reduction.

"Significant investments were made in FY2022 to manage the remediation plan and enhance the executive team in Europe. A project is now underway to identify global efficiency opportunities and offset inflationary cost pressures."

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