Why is the EML Payments share price sliding?

Posted: 19 May 2021 1:17 pm
News
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The payment services company’s shares had surged 63% in the last 12 months.

Shares in digital banking and payments services business EML Payments (ASX: EML) are among the biggest losers on the ASX boards on Wednesday. At the time of writing, EML shares had lost more than a third of their value and slid to $3.21.

Why the EML stock price is falling

EML Payments shares have been in a trading halt since Monday, when the company flagged that the Central Bank of Ireland (CBI) had raised "significant regulatory concerns" about its recently acquired Ireland-based business, Prepaid Financial Services (PFS).

The company has now released a statement detailing those concerns and on the face of it, things don’t look pretty. Investors are voting with their feet as EML shares resumed trading on Wednesday following the announcement.

EML said the Irish central bank’s concerns relate to the anti-money laundering/counterterrorism financing risk and control framework at PFS’s card services business. The CBI has now asked the business to provide submissions in relation to these concerns.

The group clarified that the concerns have no relation to the Australian or North American operations of the group.

In an ominous sign to investors, EML said it is not able to estimate the potential impact of the issue on the Group’s consolidated FY21 results. If the Irish central bank makes any directions, they could materially impact PFS’ European operations. These directions could also potentially restrict activities of PFS’ cards business.

Key acquisition

EML only completed the acquisition of the Ireland-based PFS in March 2020 after renegotiating the deal, for a whopping $362 million, which includes some performance-based earn-out.

Incidentally, PFS was one of three companies that admitted to breaching competition rules in the UK by agreeing not to compete or poach clients. PFS, Mastercard and allpay in March this year provisionally agreed to pay a fine to settle with the UK regulator.

EML had originally signed the acquisition deal in November 2019 in an effort to catapult EML into the digital banking space and beef up its prepaid cards offerings. The acquisition has been key to raising business momentum, leading EML to reinstate earnings guidance in February, following a COVID-19 dip.

As a result, PFS shares have run up 63% in the last 12 months, as retail investors piled into the high-growth business.

Now those gains are under a cloud, resulting in many investors heading for the door.

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