Can shares in EML Payments recover from CEO departure?

Shares in ASX-listed fintech EML Payments have plunged following the departure of long-serving CEO Tom Cregan. Cregan’s resignation arrived after a decade-long period at the helm of the Brisbane-based payments company.

The market may have overreacted however, with new CEO Emma Shand bringing deep experience as a tech executive to the table, alongside plans for a major strategic readjustment. EML’s share price could rise on its potential appeal as a takeover target in the wake of recent price declines.

Cregan’s resignation surprises some observers

On 10 July, Cregan handed in his resignation to the EML board, in a move that surprised some market observers. Cregan had served as the CEO and Managing Director of EML since 2012, and, according to Ron Shamgar of Tamim Asset Management, enjoyed the support of most long-term investors in the stock.

Cregan played a pivotal role in the growth of EML during his decade-long tenure at the top. EML’s chairman Peter Martin said that Cregan had ‘tirelessly led the company from a small technology business in Australia to a diversified payments leader operating in 32 countries’.

The market reacted negatively to the news, with EML shares dropping 25.6% to 96c on 11 July immediately following the announcement. The plunge brought EML’s share prices down to about a 70% year-to-date decline.

RBC Capital Markets analyst Garry Sherriff called Cregan’s resignation an ‘unexpected negative surprise’ in a note to clients. He had previously downgraded his forecasts for EML based on the tougher economic situation in Europe.

Cregan’s successor flags strategic adjustments

EML’s board wasted no time in finding a successor to Cregan, appointing veteran tech executive Emma Shand as the company’s new CEO and Managing Director. Shand has 25 years of global experience in the tech and finance sectors, including more than 16 years in senior management roles with the Nasdaq stock exchange.

Shand has flagged a strategic shake-up for EML. The company’s ASX announcement indicates that she will ‘dedicate substantive time and presence’ in Europe.

EML bills itself as an innovative payment solution platform that uses agile technology to facilitate the quick and secure movement of money. Its prepaid cards are its flagship offering, enabling vendors to provide clients with branded and customisable payments solutions.

The European market accounts for about 60% of EML’s revenues, which could be a vulnerability given the economic uncertainty in the region created by the war in Ukraine. The weakness of EML’s European operations already contributed to a profit downgrade in April this year, which triggered a 39% drop in its share price in a single trading session.

Shand said that her priority as incoming CEO would be to scrutinise EML’s strategy and make adjustments where required. This could mean major changes to the European side of the business to improve the company’s fortunes.

EML now potentially a tempting takeover target

The weakness of EML’s share price potentially makes it a tempting takeover target, which, if this analysis and its assumptions are correct, could boost prices in the near future. Even before the plunge in share price triggered by Cregan’s resignation, EML found itself courted by a leading private investment firm.

In April the Australian Financial Review reported that Bain Capital was mulling a takeover of EML Payments following a series of discussions between the two parties. Bain and EML had even entered an exclusivity agreement which concluded at the end of March this year and gave Bain access to EML’s books for due diligence purposes.

Bain eventually decided to walk away from the deal, reportedly because of the hefty takeover price. Further declines in EML’s share price since then, however, due to the April profit downgrade and now the sudden resignation of Tom Creegan, could make it a more appealing takeover candidate for suitors in the private investment sphere.

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