Payments processing company EML Payments (ASX: EML) today announced to the market that there is light at the end of the tunnel.
The troubled small-cap growth stock had seen its share price crater due, in large part, to the fact that it was midway through a large acquisition when the coronavirus crisis hit. This left shareholders exposed to paying far too much for a business called PFS: we covered the original transaction here.
One of the reasons that I was holding off on buying EML was that there was uncertainty around this transaction. Today, that has changed, because the company has renegotiated the agreement to pay a much lower price. To be specific, the “upfront enterprise valuation of GBP 131.5 million (AUD 252.3 million1) is reduced by GBP 94.5m from GBP 226m.”
As a result, once the acquisition of PFS completes, EML “will have in excess of AUD 100 million in cash in addition to a breakage (contract assets) accrual of AUD34.8 million of which approximately 75% is expected convert to cash over the next 12 months.”
To me, this added certainty makes EML Payments more interesting. However, I remain cautious because the breakage mentioned above is one-off in nature, and the business will clearly be majorly impacted by both an initial lock down because it powers both gift cards and betting company cards. Given that people people cannot currently buy gift cards or bet on sports events, this will be hit hard in the short term. And given the likely recession, these businesses will be hit hard in the medium term, too.
All in all, today’s news was really good for EML Payments, and it is not surprising the share price is up over 40% at the time of writing. I’ll keep an eye on this one should the excitement dissipate.
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