EML ceases onboarding new customers in Europe: shares down another -25%

EML Payments (ASX: EML) shares just keep on bleeding, down more than -20% on Monday after advising that its Prepaid Financial Services business will temporarily cease onboarding new customers and distributors in Europe.

EML said this temporary measure is expected to reduce Group revenues by 'less than $5 million in FY23'. For perspective, the company posted 21% revenue growth in FY22 to $234.1m.

After today's selloff, EML is doing almost more revenue than its entire market cap.

The story so far

EML's Prepaid Financial Services (PFS) came under fire last May over an alleged anti-money laundering activity. The business has been operating at a limited capacity under guidelines provided by the UK Regulator, the Financial Conduct Authority.

The 'material growth cap' has now escalated to a temporary pause on any new clients for Prepaid Financial Services, until the regulator is "satisfied that PFS UK has successfully executed its remediation plan based on satisfactory third-party assessment."

“It has been my priority to work constructively with the Regulators. EML accepts that it has not moved quick enough in the past to address regulatory concerns in the PFS business. We need to do better, and we will," said CEO Emma Shand.

In parallel, Shand said they will undergo a strategic review to "simplify our business, better integrate previous acquisitions into EML and to grow sustainably."

To the point of no return

EML acquired PFS back in 2019 for approximately $423m upfront plus an earn-out component of up to $103m.

At the time, this was viewed as a gamechanging acquisition for EML to gain more exposure to Europe and diversify its business towards white label payment solutions and banking-as-a-service technologies.

Instead, PFS has acted as a massive regulatory overhang for EML. The situation has deteriorated from regulatory scrutiny, to a material growth cap to now the temporary suspension of new clients.

After another massive gap down, EML is down more than -90% from its April 2021 high.

What happens when something is down more than 90%? It means a 1,000% gain is needed to recoup those losses.

EML share price chart