EML Payments Limited (ASX EML) announced an agreement to acquire Flex-e-card Limited. The EML share price bounced by more than 8% off the back of the news today.
The acquisition of Flex-e-card is expected to be earnings and cash flow accretive immediately. It will also allow EML Payments to support gift card programs in Poland and the UAE through Flex-e-card.
About EML Payments Limited
(ASX EML) is a leading provider of instant, innovative, and secure payment solutions to its customers. The company issues physical, virtual, and mobile card solutions for gifts, rewards, payouts, and incentives.
EML Payments manages about 1,200 payment programs in 21 countries in Australia, North America, and Europe. It processes billions of dollars of payments every year and uses financial technology to provide secure and trusted transactions.
Agreement to acquire Flex-e-card Limited
EML Payments Limited, through its wholly-owned subsidiary EML Payments Limited Europe, entered into a to acquire 100% ownership in Flex-e-card Limited for approximately AUD 40.5 million. The agreement was signed on May 17, 2019, and the transaction is expected to close on June 28, 2019.
The acquisition of Flex-e-card is expected to add AUD4-4.1 million to the earnings of EML Payments in the first year of ownership. It will amount to approximately 14.5% accretion to the financial guidance of EML Payments for FY 2019. Therefore, the EML share price shot up by more than 8% off the back of the acquisition announced today.
The purchase price of about AUD 40.5 million will be funded by EML payments using the group cash reserves and its debt facility with a bank in Australia.
The acquisition of Flex-e-card has added 226 new shopping malls to the Gift & Incentive segment of EML Payments, thus enhancing its core segment.
It will also allow EML Payments to penetrate new geographical markets like Poland and the UAE where it does not operate currently, and will also expand the product capabilities of EML Payments with Flex-e-card’s online sales capabilities.
Financial Position of EML Payments Limited
EML Payments holds a solid position in the consumer finance industry. At the current EML share price, the of EML Payments is at a high of 187.44 compared to the industry average of 34.34, and the Price to Cash Flow ratio is also topping the charts at 464.02 compared to the industry average of 16.78.
EML Payments look heavily over-priced right now. However, it has also reported steady and consistent growth in total revenues, gross profit, operating income, and net income over the past years.
The company is expanding both in terms of geographic markets and product offerings, as is evident from the Flex-e-card acquisition.
The increased footprint of EML Payments will lead to enhanced earnings and stronger cash flows.
This shows an optimistic future for EML Payments. However, at the current EML share price, valuations are high so it may be worth waiting for a pullback before considering taking a position in EML Payments.
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