I think the EML Payments Ltd (ASX: EML) share price looks like a buy after the first quarter of FY21.
EML is a payments business that has various products which are from three divisions: Gift & Incentive (G&I), General Purpose Reloadable (GPR) and Virtual Account Numbers (VANS).
EML Payments’ Q1 trading update
EML reported that its gross debit volume (GDV) for the first quarter of FY21 was $4.85 billion. This was up 51% compared to a year ago and up 20% from FY20 Q4.
Management said that historically, the first quarter is the weakest quarter of the year.
EML’s revenue for the first quarter came in at $40.6 million. This represented growth of 75% from a year ago and 20% growth from FY20 Q4.
Most impressively, EML reported that it generated $10 million of EBITDA (click here to learn what EBITDA means). This meant that EML grew its EBITDA by 215% compared to last year and 69% compared to FY20 Q4.
Cost control initiatives reduced cash overheads by $0.7 million compared to the prior corresponding period, excluding PFS.
Looking at the individual segments:
Compared to FY20 Q1, GDV fell 11% because of the COVID-19 impacts on shopping centres. The GDV was up 41% compared to FY20 Q4, showing a significant recovery, and the yield was ahead of expectations at 5.98% because of improved trading in shopping centre programs. Christmas is crucial for this segment.
General Purpose Reloadable saw GDV growth of 234% from FY20 Q1 and 16% growth from FY20 Q4. Excluding PFS, GDV still grew by 16% over FY20 Q1 driven by Australian payroll and gaming payout volumes. PFS grew GDV by 24% in FY21 Q1 compared to FY20 Q4 – it saw two record GDV months in July and September.
Virtual Account numbers saw flat GDV compared to FY20 Q1, though GDV grew by 23% compared to FY20 Q4.
EML said that split of FY21 profit is expected 48% of profit in the first half and 52% of profit in the second half.
Why I think the EML share price is a buy
These numbers were solid and it shows the recovery for the company from COVID-19, with potentially more to come.
I think there are number of potential positives for EML. There’s a potential recovery of shopping centre volumes after COVID-19, particularly if a vaccine can be made. There’s the ability to grow strongly in Europe and US, particularly when it comes to digital payment options.
There’s steady growth away from cash and towards other forms of payment, which could benefit EML.
Over the long term, I think EML is a very interesting business. It’s one of the ideas I’ve got my eyes on including other ASX growth shares like Pushpay Holdings Ltd (ASX: PPH) and Bubs Australia Ltd (ASX: BUB).
