Technology

Investors in this ASX stock are scattering before an Irish Central Bank review

Fri 24 Feb 23, 3:04pm (AEDT)
Runners lined up for a sprint
Source: iStock

Key Points

  • EML Payments is in trouble with the Irish Central Bank
  • The ICB believes EML is lagging in its efforts to adhere to the country’s anti-money-laundering laws
  • Shares were down nearly -13% heading into mid-afternoon trades

The Irish Central Bank (ICB) is concerned that ASX-listed and Ireland-based EML Payments (ASX: EML) has not done enough to address concerns that EML products could facilitate money laundering in the country. 

The ICB issued EML notice that it was intending to launch a second review into EML on Friday. 

In response, shares dropped -12.9%, to 50.5c, as at 1:55pm (AEST). 

The news was released in a trading update by the company on Friday and is clearly the catalyst for the downward movement. 

Market Index data shows the average 4-week share volume turnover for EML is 1.6m shares. 

So far today, that figure is 3.6m shares. 

Wait - what’s this about a second review? 

It hasn’t been a great year for EML, with the stock falling almost 80% over the past 12 months. In July last year, the company’s former CEO made a shock exit and was not paid termination bonuses.

In October last year, EML was pushed to cease onboarding new customers in Europe. The company provides digital payment services, including prepaid and some BNPL-style arrangements. 

That followed accusations from May 2022 that EML’s UK-based company, Prepaid Financial Services (PFS), failed to adhere to anti-money laundering laws. A ‘material growth cap’ was placed on the company. 

Growth cap now flat year on year

Now the ICB has taken aim at EML’s Irish subsidiary, PFS Card Services Ireland Limited (PCSIL).

“The ICB has stated it considers that PCSIL has made limited remediation progress to date with significant and ongoing deficiencies remaining in PCSIL’s control network,” EML wrote on Friday. 

“ICB has notified PCSIL that it is ‘minded to issue a direction’ that growth in total payment volumes for the period 31 March 2023 to 30 March 2024 be restricted to nil% above annualised baseline volumes in the year January to December 2022.” 

“This would be a change from the previous 10% growth restriction imposed until 8 December 2023 and communicated to the market on 10 November 2022.”

All in all, EML estimates the ICB review threatens up to 30% of EML’s global revenue. 

More trouble for EML 

The company described the move as disappointing, but stated 70% of its remaining global revenue is unlikely to be affected in full-year results. 

However, in its first quarter results of FY23, the company noted costs were higher by approximately 30%. 

EML’s half-year results showed profits down 95%.

Quick bite: EML’s half-year results 

Reports first-half FY23: 

  • Revenue of $116.6m, up 2%

  • Interest revenue of $9.4m vs. $2.3m a year ago, offset by lower establishment fees

  • Underlying EBITDA of 13.4m, down 50% and well-below consensus expectations of $17m

  • Underlying net profit of $0.7m, down 95%

  • Profit impacted by non-cash impairment of $121.3m to reduce carrying value of PFS and Sentenial Group 

  • Cash balance of $79.2m, up 7%

Full-year guidance:

  • Revenue of $235-245m vs. $246.8m expected 

  • EBITDA of $26-34m vs. $29m expected

  • Underlying net loss of $4m vs. $8.0m expected

A look at EML's five year charts
A look at EML's five year charts

 

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Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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