EML Payments (ASX: EML) shares are down 30% on the AGM, trading statement and strategic review. There have long been significant problems with the structure of this business. Management have been trying to sort them out - but the solution decided upon seems not to be that much of a hit with the market.
Essentially, the company is to retreat to those markets which are already profitable: “EML to refocus on core, profitable and cash flow positive businesses of Gifting, Australia (GPR) and UK (GPR). Refocus on these business lines has, and will, result in a simplified
operating model, increase in cash flow, reduced management distraction
and an improved regulatory risk profile. Continued attention on PCSIL regulatory remediation and achieving sustainable financial performance with a refreshed PCSIL board.” Or perhaps more accurately, concentrate upon those that are not horrendously money losing. That still leaves that Irish problem.
EML Payments share price from Google Finance
We’ve talked before about that Irish problem at EML Payments: “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.” Now, the Irtish have allowed the local board to be replaced, but that still leaves management with the task of sorting the problem out. We’ve also talked about EML here.
The predictions for revenues, EBITDA and so on are pretty good. But that Irish business still leaks cash, which isn’t so good. But rather more than that. Even if that’s sorted out EML is effectively saying that it doesn’t want that business any more anyway. And given the way that EU regulation works, that’s also to walk away from the entire EU market. That’s really, to our mind at least, why the 30% fall. They’re not going to try in that market of 450 million people.
