In news on Australian stocks, shares of EML Payments Ltd. (AU:EML) soared 11.5% on Friday after the company shed its Sentenial business in Europe to London-based GoCardless for AU$54.1 (€32.75) million. The company stated that this divestiture will contribute positively to cash flow and earnings one year after completion. As a result, investors cheered the news even though the sale value was half of the acquisition price paid by the company in 2021.
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The deal value could possibly be reduced, limited to €7.5 million, based on ongoing contract performance until the sale is completed. Meanwhile, the deal could involve additional payments based on new contracts signed between February 1 and 30 days after the sale is completed.
EML is a payment technology company with offices located in Australia, the UK, Europe, and the U.S.
The Deal’s Rationale
With this sale, EML is prioritizing the simplification of its structure and focusing on its profitable businesses. Further, the sale will generate additional funds to fortify its balance sheet.
The Sentenial business is deemed non-core and unprofitable, with a projected EBITDA loss of approximately AU$2 million in FY24. This business is easily separable from the EML’s broader operations and will not result in any customer overlap.
The sale also includes its open banking business, Nuapay, and is contingent upon regulatory approvals in France and the UK. The transaction is expected to be finalized within 3-6 months.
What is the Price Forecast for EML Stock?
Overall, EML stock has experienced significant growth, with a gain of 57% so far in 2024. This was in sync with its solid performance in H1 FY24. In the first half of FY24, the company saw a 30% revenue growth to AU$150.7 million and a 119% increase in underlying EBITDA to AU$29.3 million compared to the same period last year. The company also maintained its full-year EBITDA guidance of AU$52 to AU$58 million.
Moving forward, analysts foresee minimal upward movement in EML stock and have established an average target of AU$1.13 for the EML share price. This is 9.4% below the current trading price. Based on the analyst consensus from TipRanks, EML stock has received a Moderate Buy rating, supported by two Holds and one Buy recommendation.
