Why the EML Payments share price is rocketing over 12% higher today

The S&P/ASX 200 Index (ASX: XJO) may be tumbling lower today, but that hasn’t stopped the EML Payments Ltd (ASX: EML) share price from racing higher.

At the time of writing the payments company’s shares are up over 12% to $3.70.

Why is the EML Payments share price racing higher today?

Investors have been buying EML Payments’ shares on Wednesday after the release of a trading update.

According to the release, the company remains on course to deliver a solid full year result in FY 2020 despite the pandemic.

Although it experienced a deterioration in its Retail Malls segment in March, revenue for the nine months ending March 31 was up 20% on the prior corresponding period to $87.1 million.

And thanks partly to an expansion in its gross profit margin from 73.7% to 75.9%, the company’s EBITDA grew at the quicker rate of 24% over the nine months to $27 million.

Operating cash flow over the period was strong at $27.3 million. This represents an EBITDA conversion rate of 101%. This was due partly to breakage receipts from gift cards sold in prior years.

April update.

Although the Retail Malls segment continued to struggle in April because of mall closures, the company’s Salary Packaging business and its online gaming vertical performed strongly.

This has led to unaudited group EBITDA of $2.7 million during the month of April, inclusive of its PFS acquisition which was consolidated on April 1.

Management appears confident that it is onwards and upwards from here. It commented: “We expect to see a gradual opening of malls in various countries during May and June 2020 onwards which should represent an improvement to the trading conditions experienced in April 2020.”

Though, if trading conditions took longer than expected to improve, the company is exceptionally well-positioned to weather the storm.

At the end of April EML Payments had in excess of $125 million in cash. It also expects further breakage on gift cards sold 12 months ago to bolster its cash flows.

Management explained: “EML will continue to generate operating cash inflows from breakage on gift cards sold 12 months ago as the contract asset of $36.8M converts to operating cash inflows. Approximately 75% of the contract asset will be released into operating cash within 12 months. EMLs’ contract asset derives from breakage on approx. 11M gift cards previously sold reflecting individually small amounts per card which gives us a reasonable expectation that breakage rates will remain consistent with prior trends.”

Director sales.

The company also advised that its chairman, Peter Martin, intends to sell between 300,000 and 400,000 shares in the coming days or weeks.

Mr Martin is a long-term investor in EML, having acquired his initial stake in 2012. He now holds 7,718,992 fully paid ordinary shares, which means this is only a small portion of his holding he is selling.

The company explained that given his stage of life, family and other needs, he is likely to sell some shares each year.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia has recommended Emerchants Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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