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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It’s not the 98% plunge in traffic through Australia’s once-bustling airport that will be keeping shareholders in Sydney Airport Holdings Pty Ltd (ASX: SYD) on edge.

It’s the battle between state premiers on boarder restrictions that will be a bigger sentiment driver for the airport as investors grapple with the fact that the company’s income isn’t as diversified as management claims it to be.

I’ll explain more of this later.

Clipped wings

The near-total freeze on domestic and international air travel due to the COVID-19 pandemic meant that only 92,000 passengers moved through Sydney Airport in April this year.

In contrast, 3.7 million flowed through its terminals during the same month in 2019.

Of the total numbers last month, 49,000 were domestic travellers, representing a 98% drop from April 2019.

Caught in the crossfire

The pressure is building on state premiers to allow Australian visitors from beyond their borders to return. This could happen in June although Queensland is the holdout.

Businesses and the federal government are pressuring Queensland Premier Annastacia Palaszczuk. She’s warning against restarting the tourism industry while our two most populous states of Victoria and New South Wales continue to report cases of community transmission, reported the Australian Financial Review.

The sunshine state indicated it may not welcome travellers from the southern states until at least September.

Meanwhile, NSW will allow its residents to holiday anywhere within the state from June 1, although that isn’t going to help Sydney airport or airlines like Qantas Airways Limited (ASX: QAN).

“New normal” for travel stocks

The airlines have flagged their own “new normal” for when services eventually resume. As a safety precaution, Qantas and Virgin Australia Holdings Limited will issue masks to passengers but won’t make wearing them compulsory.

The airlines will also stagger boarding and disembarkation (sounds like more bad news for cattle class passengers!), do more cleaning and have hand sanitisers in readily accessible places.

What they won’t do is leave empty seats for social distancing as Qantas’ boss Alan Joyce warned this will force ticket prices to surge nine-fold.

“L” not “V” shape recovery

It will be a long time before things go back to anything resembling pre-coronavirus, especially for Sydney Airport.

I am not even talking about the return of international travellers either as that will take many more months through a multi-stage comeback.

Eggs in different baskets but same trolley

Airport management boasted about its diverse income streams during its February results. Passenger traffic was flat but underlying earnings before interest tax depreciation and amortisation (EBITDA) jumped 4%.

This was due to rents it collects from retail, hotel and car hire companies. But even as domestic traveller return, the airport may have to contend with a second battle front.

Retailers are gearing up for a bitter fight with shopping centre landlords and structural change is in the air!

If retailers manage to secure significantly lower rents and change how mega malls charge for space, as I suspect, then I believe tenants at the airport will expect a similar treatment.

More reading

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• ASX 200 climbs 1% in positive start to the week
• 2 high yield ASX dividend shares to buy for 2021
• 3 industries that may never recover from COVID-19
• Virgin narrows its shortlist down to 4 suitors

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Why investing in these COVID-19 stricken ASX shares won’t be the same again for a very long time appeared first on Motley Fool Australia.

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