EML shares plunge 35% in European downgrade and slowdown
It faces a potential class action lawsuit over European disclosures amid higher compliance costs, which have weighed on recent financial results.
EML was trading with a market capitalization of around $625 million just before the close of trading on Tuesday. Before the market opened, it was worth more than a billion dollars.
RBC Capital Markets analyst Garry Sherriff called the downgrade “disappointing” given the positive setup for the new year.
More cautious approach
A more cautious approach in Europe to new programs could come from potential customers, he added, as EML said its second-half “establishment revenue” would be down $4 million. compared to the previous first half.
Downward revisions to full-year guidance were 4% for expected revenue, 13% for expected EBITDA and 7% for net profit expectations. EML said the Australian and North American businesses were performing as expected.
“Operational execution issues in Europe and a more cautious approach to new programs have impacted the launch of new programs,” EML said. “We now expect continued challenges into the fourth quarter, which has led to a narrowing of the guidance range.”
EML, typically a beneficiary of higher interest rates, also said its revenue would be affected by delayed regulatory approvals for euro bond investments and by currency exchange rates that would work against it.
The presentation at Goldman’s annual “Emerging Leaders Conference” also showed slides highlighting EML’s potential to seize opportunities in European open banking and account-to-account payments in Europe.
But overhead costs would come “towards [the] upper end of expectations” in the second half as the market believed that its sharp increase in compliance costs in fiscal 2022 would not be repeated this year.
The genesis of EML’s recent troubles was the purchase of Prepaid Financial Services (PFS) in Ireland at the end of 2019 for $425 million, as part of a global expansion. Almost a third of EML’s global consolidated revenue came from its Irish trading business after its non-UK business moved out of Britain after Brexit.
But the Central Bank of Ireland then raised concerns about the composition of EML’s board, amid tighter scrutiny of foreign payments firms.
He questioned the number and background of directors on PFS’s board, the board’s governance methodology and processes, and the controls and responsibilities of EML’s compliance leadership.
He was forced to hire new executives in Europe, including a group chief operating officer, chief financial officer, general counsel, chief compliance and regulatory officer, chief compliance officer and chief compliance officer. risks.