Why the EML share price is down 37% in the last month
We examine what caused the stock to crash and how a number of key analysts responded.
It’s been a horror month for EML Payments (ticker: EML), with the stock down close to 40% after the Central Bank of Ireland (CBI) raised ‘significant’ regulatory concerns in regards to how EML’s Irish subsidiary – PFS Card Services AML/CTF – risk and control frameworks and governance.
The company noted that the CBI was ‘minded’ to issue directions in relation to the concerns raised, with management adding that if such directions were made they may have a material impact on the company’s European business and as a corollary, global operating performance.
Illustrating that point, the company told the market that 'During the period from 1 January 2021 to 31 March 2021, EML estimates that approximately 27% of EML's global consolidated revenue (unaudited) derived from programs operating under PCSIL's Irish authorisation.'
Macquarie constructive, Canaccord cautious
Importantly however, as analysts from Macquarie pointed out, recent enforcements from the Irish Central Bank has not led to the removal of licenses. Rather, the CBI has sought settlements, with the average settlement since 2019 standing at approximately €1.5 million.
Based on the investment bank's base case, which assumes EML will satisfactorily 'respond to the CBI’s concerns and be able to continue operating, albeit with an increase to its existing cost base', Macquarie reiterated their Outperform rating and $4.00 price target on EML.
Despite that, the short-term is likely to be marred by uncertainty, with Macquarie analysts adding:
‘We recognise uncertainty will weigh on the stock near term and this will serve as a reminder of the risks and opacity associated with the business driving a de-rating.’
Management stressed that these concerns had no bearing on its Australian, UK or North American operations, as well as the company's other Irish subsidiary, EML Money DAC.
Analysts from Canaccord Genuity took a more conservative stance, lowering their rating from Buy to Hold, on the basis of ‘expected overhang in the stock and large range of unexpected outcomes.’
EML share price out of favour
In spite of EML management’s commentary and Macquarie’s optimism, with almost a third of the company’s revenue at stake, its unsurprising that the stock was sold-off heavily by investors in response.
The day before that initial announcement, the stock closed at $5.15 per share, not too far off the company’s 52-week high. Investors rushed for the exit on the day of the announcement: the stock opened at $2.66 per share and at its intraday low was down as much as 52% from the prior close.
Over the next seven sessions the stock would rebound, if only somewhat, last trading around the $3.49 mark. At those price levels the stock remains down 37% in the last month.
Trade stocks like EML long and short with IG today
Create an IG account or log in to your existing account to get started now
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.