EML share price pummelled: Here’s why this expert sees 100% upside

A man in a business suit holds his coffee cup aloft as he throws his head back and laughs heartily.

A man in a business suit holds his coffee cup aloft as he throws his head back and laughs heartily.

The EML Payments Ltd (ASX: EML) share price has been heavily punished in 2022. It’s down by a hefty 55% since the start of the year.

In the last month alone, it has plunged more than 48% and, over the past year, is 73% lower.

But some brokers think that the EML share price can bounce back in a big way. One of those brokers is Ord Minnett.

The company’s latest selldown happened after EML’s quarterly update for the three months to 31 March 2022. It wasn’t as good as Ord Minnett had been hoping.

Quarterly recap

Looking at the numbers, EML reported that its quarterly gross debit volume (GDV) was $23.9 billion, up 408%.

Revenue was up 21% to $59.8 million, with gross profit increasing 17% to $42.2 million. However, underlying overheads jumped 50% to $28.6 million.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14% to $13.6 million and underlying net profit after tax and amortisation (NPATA) fell 22% to $8.1 million. Profitability can have an impact on the EML share price.

EML explained that the gross profit margin was impacted predominately by higher negative interest and lower establishment fees in Europe. It said that changes to its treasury investment policy will begin to offset these costs in the fourth quarter.

The overheads rose because of an increased headcount in Europe, increased IT expenditure and the inclusion of the acquired business Sentenial (which accounted for 25% of the increase).

After this quarterly update, the company reduced its FY22 guidance. It said that operational execution issues in Europe and a more risk-averse approach impacted the launch of new programs. It’s expecting continued challenges in the fourth quarter which have led to a reduction in the guidance range.

New FY22 guidance

In FY21, EML generated underlying EBITDA of $53.5 million. The previous guidance range was between $58 million to $65 million. The new guidance is for a range of between $52 million to $55 million.

EML generated $32.4 million of underlying NPATA in FY21. In FY22, it was previously expecting to make between $27 million to $34 million of NPATA. Now underlying NPATA is expected to be between $27 million to $30 million. That’s a reduction of the mid-point of the guidance.

Ord Minnett on the EML Payments share price

The broker has a buy rating on the business, with a price target of $2.95. That suggests a possible rise of more than 100% in the next 12 months. But who knows what’s going to happen next?

Ord Minnett points to a number of things that aren’t helping the business right now, however, its valuation looks attractive. It also notes that EML operates in a growing industry and it has the potential to do well.

Based on current projections from the broker, the company is expected to make a net profit in FY23 and the EML share price is valued at 32 times FY23’s estimated earnings.

The post EML share price pummelled: Here’s why this expert sees 100% upside appeared first on The Motley Fool Australia.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments. The Motley Fool Australia has positions in and has recommended EML Payments. 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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