Despite a downgrade, one broker thinks this ASX small cap can still deliver four-fold returns

EML Payments Ltd (ASX: EML) recently announced a downgrade in earnings guidance for the full year, but according to at least one broker, there’s still plenty of upside in this company’s shares.

Downgrade spooked the market

EML shares took a tumble last week, falling from 57.5 cents to 37 cents, after the company revised its expected EBITDA for FY26 from $58 to $60 million down to $47 to $50 million.

The shares are currently changing hands for 40 cents.

The company said the revision took into account two factors, in its own words:

First, while EML has continued to secure new business, including a further $2.5 million in forecast annual revenue signed since the release of its FY26 Interim Results, a number of program implementations are now expected to go live later than previously assumed. This has reduced the revenue contribution expected in FY26. Second, trading in our northern hemisphere businesses has been significantly below forecast during the third quarter, reflecting weaker consumer demand and broader macroeconomic uncertainty. We have assumed this trend will continue through the fourth quarter.

The company said its strategic initiatives including Project Arlo and the development of a global mobility solution remained on track, and said it “is actively positioning itself to focus on higher margin, higher growth categories in its portfolio”.

Executive Chair Anthony Hynes added:

These implementation delays are timing-related rather than lost opportunities, and we are working closely with our partners to bring those programs to market as efficiently as possible. Trading over recent months has been weaker than expected in our northern hemisphere businesses, reflecting both challenging sentiment and a need to upweight commercial leadership, particularly in Europe, which is well advanced. Our strategic initiatives remain on track, and we remain focused on disciplined execution through FY26 to position the business for stronger performance in FY27 and beyond.

Shares looking cheap

The analyst team at Canaccord Genuity has run the ruler over the changes, and has downgraded its share price outlook for the company by 15 cents to $1.60 – which would still represent a fourfold return on investment if achieved.

The Canaccord team said:

Despite the negative outcome for EML, which has been largely driven by factors outside its control (customers delaying and macroeconomic environment), we remain positive on the company’s medium-term growth trajectory. Our view is underlined by the company having successfully built its pipeline from near $0m to greater than $105m since FY24 with a proven ability to convert pipeline opportunities into new business wins. We expect this to continue in both existing product lines and with new strategic product development.

EML Payments is valued at $153.5 million.

The post Despite a downgrade, one broker thinks this ASX small cap can still deliver four-fold returns appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.