Technology

Two tech stocks trading double-digits lower this afternoon

Mon 25 Jul 22, 4:16pm (AEST)
Free dive
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Key Points

  • Citi warns that the market is too bullish on Appen ahead of its first half earnings
  • EML Payments has flagged delays in implementing a remediation plan on behalf of the Bank of Ireland at its PFS Card Services business in Ireland

While the S&P/ASX Information technology (XIJ) Index and the S&P/ASX All Technology (XTX) Index were slightly down today, following a poor finish to the week on the tech-focused NASDAQ, two technology stocks EML Payments (ASX: EML) and Appen (ASX: APX) took a deep dive into double-digits in mid-afternoon trade.

Appen

Unlike EML, which made yet another negative announcement today, Appen’s -15.02% share price fall follows warnings by Citi that the market is too bullish on Appen ahead of its first half earnings.

While Citi retains a Neutral rating and $6.60 price target on Appen, the broker expects the mid-cap artificial intelligence data services company to fall -20% short of the consensus estimate for earnings (EBITDA) of US$20.6m.

The broker also suspects weakness in digital advertising and Facebook’s transition to a new artificial intelligence (AI) engine may undermine Appen’s guidance for a material increase in second half revenue.

Pressure on margins

While Macquarie expects customer diversification to take time, the broker recently upgraded Appen to Neutral from Underperform (price target of $5.70 retained) due to the stock trading below its historical average on earnings multiples.

Over time, the broker expects growth to be driven by China and the Appin Ontology Studio.

Macquarie forecasts a full year FY22 dividend of 12.00 cents and EPS of 46.50 cents.

Late May Ord Minnett retained a Hold rating and target price of $7.00 after noting a soft start to FY22 from Appen, with the company guiding to materially lower first half operating earnings than a year ago with elevated costs placing pressure on margins.

Consensus on Appen is Hold.

Based on Morningstar’s fair value of $12.54 the stock appears to be undervalued.

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Appen share price over 12 months.

EML Payments

A week after bouncing 6.86% higher on news that EML had been in discussions with two companies in June regarding a potential takeover, the prepaid card payment company's share price sank -21.34% today following further bad news from its Irish subsidiary.

Ironically, the share price tanked by exactly the same amount it did 11 July following the surprise resignation of long-standing CEO Tom Cregan.

Following falls today, EML's share price is again down around -68% over the past year.

The company flagged delays in implementing a remediation plan on behalf of the Bank of Ireland (BoI) at its PFS Card Services business in Ireland (PCSIL).

Further controls may be required

Management notes that the central bank has identified shortcomings in components of the remediation programme, primarily around the sequencing and approach taken to the risk assessment of its distributors, corporates and customers.

While EML’s Irish subsidiary has adjusted its remediation program in response to the regulator’s concerns, management notes that further controls may be required within its internal control framework.

As a result of the adjustments to the remediation program, EML told investors that assurance should be finalised "in 2023".

Consensus on EML is Moderate Buy.

Based on Morningstar’s fair value of $3.65 the stock is undervalued.

Based on the three brokers that cover EML (as reported on by FN Arena) the stock is currently trading with 201.4% upside to the target price of $2.83.

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EML Payments 12 month share price snapshot.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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