EML Payments (ASX: EML) (OTCPK: EMCHF) has had substantial problems over the past year and more - why the EML stock is down 75% over the past 12 months. The 30% jump today doesn't make up for that, obviously. It's also an interesting sign that the EML share price jump comes from a continuation of restrictions - meaning that this can be seen as relief that the regulatory outcome wasn't worse. Share prices rising in relief are not huge and great votes of confidence in a business plan.
The problem EML faces is those series of regulations which surround money movement. Obviously, the growth of online, online banking and payments, means that there's a substantial business opportunity in being a payments processor. Which is what EML Payments does and so we'd presume that a well run company in an expanding market would do well. But this is to slightly misunderstand how the global payments system runs. One of the reasons that it's so difficult for an outsider to irrupt into the business line is that it's surrounded by masses of regulation. Regulation in considerable detail of who may do what and how.
EML Payments share price from ASX
It's this nitpicking detail which is proving to be the problem. Just over a year back the Central Bank of Ireland confirmed that it was not happy about how the European business was working. This was at least the second time around that the CBI had looked at the issue. The problem is in the prepaid debit/credit cards business and checks upon who are the users. The know your customers rules, those against money laundering and so on. These are full of finicky detail and the conclusion was that EML just isn't following those rules right.
Note that it's not accusations of actual problems with the business - it's about the procedures the business must follow. So the Central Bank imposed limits on growth in the business. That's one reason for the poor performance of the EML share price over the past year. Today's announcement is that the limitation stays - they are allowed a 0% growth in the business in this coming year. Clearly we'd all hope for good growth in such a booming market. Having the regulator say you can't grow is a bad idea.
But then that relief rally does tell us quite a lot about the market's view of EML Payments. If being barred from growth leads to a 30% share price rise then how bad must have been the news the market was expecting?