EML used to be a company easy to run numbers on. a lot more complex now with 3 countries, 5 lines of volumes (reloadable, non-r, virtual card) soon to expand to 7.
You either invest on you FA conviction going into FY18 and beyond, or you follow charts. My overall sentiment is Hold slightly leaning toward Buy on FA conviction. With mkt increasingly reluctant to price in future cash flow prospects, TA probably is still either confused or subdued. TA experts such as Ivan can talk more to it.
On FY17 basis at 1.60 sp, on my calculation, it's about 30x EV/EBITDA, on FY18 based on the line up in the HY preso (haircut with prudence), it's about 14.5x. Based on its track record in winning contract, by the end of FY17, there will be further contract to lay on top of that, hence my leaning toward Buy.
In analyzing it, the matrix to consider are as follows. I'll try talk through them regarding this HY. Pls correct and add to it, as there are so many moving parts now I'm bound to loose a few threads.:
- volume along the 5 (7) lines,
- yield on volume,
- gp%,
- how well they control Opex,
- and cash conversion.
How good is the cash flow conversion! very good to see some true cash flowing through. Working capital may balance back some going into H2, but this is a huge step up from its previous performance.
US (64% of group rev; 62% of group EBITDA)
- with very limited visibility on previous volume, yield etc, let's just compare H1 to the acquisition case for FY17: EBITDA 4.7m aud and Rev 33.3m aud
vs. actually
H1 FY17: EBITDA 5.8m aud and Rev 20.8m aud
Massively outperforming acquisition case. Positive
- GP% up from H1 FY16 ; Positive
- Virtual Card: hard to assess across the matrix, volume looking flat on pcp; and existing non-reloadable small growth in volume; FY18 and beyond: Caesar alone is 15m aud revenue potential at maturity; Opex is to step up further in pace.
Europe (21% of group rev; 40% of group EBITDA)
- GBP depreciated about 25% and erased the growth in AUD
- volume in GBP up 30%+
- Will GBP decline another 25% from here in FY18? not likely IMHO
- yield declined (???) - GM% improved a lot;
- Opex up 28%, in GBP terms it's even higher; clearly building a team for the reloadable offering is costly; H2 will see bonus being paid for winning Bet365 etc, so I see further opex increase; Note H2 16 opex step up is due to group CFO relocating to Britain from Aus hence cost changing segment; Negative but fair.
- FY18 pipeline extremely strong. it's a matter of piling on contracts now that platform is (nearly) there.
Aus (15% of group rev; 5% of group EBITDA)
- Gift Card Reloadable and consumer lending cards reduced volume, and trend to continue;
- offset by growth in Gaming cards, where the launch in 2016 of William Hills and Each Way et;
- over all topline growth of 39%, decent;
- H2 with MMS launch in April and non-reloadable to be seasonally low, at best to be a little higher than H1;
- opex down from pcp; Positive
- yield in line with pcp; - FY18 will see MMS uplift 40% on reloadable volume.
==> Overall a sturdy performance in AUS where conditions are weak, strong growth in UK although erased by currency, outstanding performance in US; in future projection, both UK and US opex see upward pressure.
Overlay what Tom laid out in the preso quantifying the key business development lines, you'll get your own conclusion.
(20min delay)
