Can EML shares recover from discovery of fraudulent incident?
EML Payment’s share price plunged after the company reported the discovery of fraudulent activity at a key business. The company could bounce back however, on the back of improving performance.
ASX-listed fintech company EML Payments has seen its share price dive on the discovery of fraudulent activity at its Sentenial business.
The market may have overreacted, however, as the development arrived just following the release of impressive results for the 2022 financial year that helped to boost its share price days earlier.
Fraudulent incident uncovered at Sentenial
On 24 August, EML announced that its Sentenial business had identified fraudulent activity involving merchants within its direct debit processing business.
According to EML, the fraudulent activity mainly took place in August 2022 before coming to its attention on 23 August.
The company said it is investigating the fraud and will take steps to recover any losses, which could be as high as AUD$7.9 million.
The news brought EML’s share price down 15% in trading on the day of the announcement, helping to erase gains posted earlier in the same week on strong full-year results.
Record revenue in 2022
The revelation of fraud at Sentenial arrived after EML’s share price rose days earlier on impressive results for the 2022 financial year.
EML’s share price was up around 10% in afternoon trading on Monday 22 August, the day following the release of its financial results. The bounce arrived despite the ASX 200 sliding 1% on the same day.
According to its FY2022 financial results, EML Payments saw growth in revenue of 21% to reach a record high of $234.1 million.
$17.9 million of this revenue was non-recurring and related to the back book of inactive cards, leaving FY22 revenue of $216.2 million and organic revenue growth of 17%.
Net interest revenue dropped 73% in FY2022 to $1.4 million, compared to a print of $5.4 million in the 2021 financial year.
EML upbeat on rising interest rates
EML says that ongoing rate hikes by the world’s major central banks are of benefit to the company due to its large stored value float.
As at 30 June 2022, EML held the AUD equivalent of $2.2 billion in its stored float. $1.7 billion of this float was in the form of cash and the remaining $0.5 billion was in low-risk bonds.
EML said that rising interest rates will enable it to reap higher returns from this war chest of highly liquid assets.
‘Central banks around the world continue to tackle high inflation and as a result are aggressively raising interest rates,’ EML said in its financial report.
‘Across the various currencies we look to achieve a return equivalent to the respective currency central bank rate, through a combination of our existing banking deposit agreements and bond investments’.
Cash flow confidence supports share buyback
EML has also announced a share buyback initiative that could have an impact on market sentiment.
On 22 August, EML announced that it plans to purchase up to $20 million of its own shares on an opportunistic basis, during the 12-month period that starts on 5 September 2022.
The purchase is part of EML’s capital management strategy and will find support from the company’s $73.7 million closing cash balance at the end of the 2022 financial year.
The company also just reaped $10.6 million in cash from the sale of its stake in Interchecks Technologies. According to EML, the sale represents a four-fold return on its initial investment in the Florida-based fintech start-up.
EML expressed confidence in strong cash flow for the upcoming financial year, enabling it to both drive growth and deliver returns to shareholders.
‘EML’s robust balance sheet and consistently strong operating cash flow generation will support our ongoing growth and development of the business whilst returning cash to shareholders,’ said EML Group CEO Emma Shand.
Take your position on over 13,000 local and international shares via CFDs or share trading – all at your fingertips on our award-winning platform.* Learn more about share CFDs or shares trading with us, or open an account to get started today.
* Winner of ‘Best Multi-Platform Provider’ at ADVFN International Finance
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get commission from just 0.08% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets