Our updates, free in your inbox:

or click here to talk to us about securing a better financial future

Luck and good management? EML

Gambling is entertainment. Financial markets, or what is called speculation, is really the force of capital being put to its best use. It’s where preparation meets opportunity. What some people call luck.

And EML (ASX: EML) has put plenty of preparation into meeting the opportunity of legalised sports betting in the world’s second largest economy:  the USA. At estimated annual revenues north of $150 billion per annum – 15 times larger than Australia –  the opportunity has government kerchinging over higher tax revenues and big betting corporates squaring up for action, for licences. 

Sensibilities of gambling suggest it is a sure fire way of getting nothing for something. And the Australian phenomena of betting on two flies crawling up a wall, has in sports betting, particularly, become a global industry.  With EML payments hub at its centre helping fuel growth.

Understanding EML’s business has in the past been like unravelling a Gordian knot.  EML’s mission statement is to create instant and secure payment solutions connecting its customers to their customers, anytime, anywhere, wherever money is in motion. The business model is diversified with 1,200 customer programs across 21 countries and 9 currencies. Its product suite is across non reloadable cards, virtual, reloadable cards, mobile merchant rewards and mobile payments.

Gross debit volume (GDV), the aggregated total of all transactions was up 53% to $6.75 billion in 2018. And EML clips the ticket for every transaction. Of this total $3.35 billion of GDV was generated from the reloadable card segment mainly through 600 shopping malls in USA, Canada, Europe and the UK. Margins vary on different GDV segments. Some cards are loyalty cards aimed at increasing mall footfall, while gift cards attract higher margins. 

There are big betting global names like Ladbrokes, Bet 365, Bet Easy, and locals like sports bet.com.au and Neds using the EML payments system for their customers.  Punters are issued with a re- loadable card or digital payments key which accesses debits/credits on their betting accounts. The payments process is an end to end processing system which includes card issuing, transaction processing, fraud control, settlement and reconciliation. Since 2014 EML has issued more than 500,000 cards in Australia with a GDV run rate currently greater than $500 million.

And with individual US states rolling out sports betting legislation EML is beefing up its executive team for the onslaught. EML says early indications are land based entities, casino’s and horse racing ventures, are teaming up with sports wagering companies as a faster route to market. EML has signed an exclusive agreement with Points Bet which is expected to initially launch in New Jersey later in FY 2019. 

Other business verticals EML operates include salary packing solutions. The payments system is used by McMillan Shakespeare, Access Pay, Paywise and EziWay to offer a tax compliant product to their customers which includes mobile merchant rewards. The attraction is better cost control for large corporates like financial institutions. Even re-useable Frank Green coffee cups have an embedded EML payments chip in their base which allows users to wave and pay electronically. 

EML also has a foot in the alternative payments camp. It is collaborating with Coinjar, a Melbourne-founded start up, that allows Australians to trade, store, spend and receive bitcoin. Coinjar describes itself as a next gen personal finance account or wallet provider.

EML has a highly recurring revenue base of almost 92%. And the company has forecast revenue of between $82 -$88 million in 2019 with EBTDA of $26-28 million and increase of least 25% over the corresponding year. The company has $39 million in cash on its balance sheet and importantly has no debt. But is also not paying any dividends, focusing on reinvesting cash into the business. 

Currently the share price is around $1.50. Which puts the stock on a P/E multiple of low 20x. Which I don’t consider expensive for the potential growth profile and a target price of $2.20 next year.

The late gonzo journalist Hunter S Thompson reckoned without gambling he wouldn’t exist. His advice: buy the ticket, take the ride. 

A better more profitable way is buy EML. 

By Kim Slater

Leave a Reply

Your email address will not be published. Required fields are marked *