The EML Payments Ltd (ASX: EML) share price is up 7% after the fintech business presented at its annual general meeting (AGM).
This business is involved in a number of different payment forms such as gift cards, digital cards, salary sacrifice, ‘digital payments’ and so on.
Acknowledgement of issues
In its presentation, EML said that it’s facing a number of challenges.
There are regulatory matters, the company said it doesn’t have the right organisation structure, that it’s a “fragmented business”, that it lacks operational efficiency, that it’s “spread too wide and too thin in its geographical reach and propositions”. It also said that its “bespoke point solutions and architecture limits scale potential.”
It then outlined how it’s going to fix and streamline things. It’s hoping to resolve the UK regulatory issues by the end of FY23.
EML is going to focus on four areas to become an “embedded finance leader”. Those areas will be: financial services, human capital management, retail and government.
FY23 trading update
In the first quarter of FY23, EML revealed a 308% increase in the gross debit volume (GDV) to $23.2 billion, while the ‘revenue yield’ is down 5% to $49 million.
The underlying gross profit margin dropped 4% to $32.5 million, so the gross profit margin improved from 65% to 66%.
However, underlying overheads increased 29% to $29.3 million.
The underlying EBITDA (EBITDA explained) dropped 70% to $3.4 million. This underlying number excludes the impact of $14 million of costs relating to “European regulatory matters, one-off restructuring, executive retentions and European fraud costs.”
FY23 guidance
EML noted that it’s benefiting from higher interest rates due its stored value float, which may be support the EML share price.
At 30 September 2022, EML held $2.2 billion in its store float, $1.7 billion was held in cash and a further $0.6 billion in “highly-rated, low-risk bonds”.
During FY22, it generated $1.4 million of net interest income. In the first quarter of FY23, it generated net interest income of $2.5 million.
FY23 annual interest is now expected to be between $17 million to $21 million.
FY23 total revenue is expected to be between $240 million to $260 million, up from $234.1 million. Underlying EBITDA for FY23 is expected to be between $26 million to $34 million, down from $51.2 million in FY22.
Final thoughts on the EML share price
EML has been through a lot of pain. It might have seen a bottom, though only time will tell with that. The higher interest rates are promising.
The company’s future seems less optimistic than it did before. I don’t know how far it will be able to recover, though I’d assume things won’t always be as gloomy for the company as they are now. There are less complicated ASX growth shares that I’d rather go for.