Why the EML share price is down 37% in the last month

Regulatory concerns

It’s been a horror month for EML Payments (ticker: EML), with the stock down close to 40% after the Central Bank of Ireland (CBI) raised ‘significant’ regulatory concerns in regards to how EML’s Irish subsidiary – PFS Card Services AML/CTF – risk and control frameworks and governance.

The company noted that the CBI was ‘minded’ to issue directions in relation to the concerns raised, with management adding that if such directions were made they may have a material impact on the company’s European business and as a corollary, global operating performance.

Illustrating that point, the company told the market that 'During the period from 1 January 2021 to 31 March 2021, EML estimates that approximately 27% of EML's global consolidated revenue (unaudited) derived from programs operating under PCSIL's Irish authorisation.'

Macquarie constructive, Canaccord cautious

Importantly however, as analysts from Macquarie pointed out, recent enforcements from the Irish Central Bank has not led to the removal of licenses. Rather, the CBI has sought settlements, with the average settlement since 2019 standing at approximately €1.5 million.

Based on the investment bank's base case, which assumes EML will satisfactorily 'respond to the CBI’s concerns and be able to continue operating, albeit with an increase to its existing cost base', Macquarie reiterated their Outperform rating and $4.00 price target on EML.

Despite that, the short-term is likely to be marred by uncertainty, with Macquarie analysts adding:

‘We recognise uncertainty will weigh on the stock near term and this will serve as a reminder of the risks and opacity associated with the business driving a de-rating.’

Management stressed that these concerns had no bearing on its Australian, UK or North American operations, as well as the company's other Irish subsidiary, EML Money DAC.

Analysts from Canaccord Genuity took a more conservative stance, lowering their rating from Buy to Hold, on the basis of ‘expected overhang in the stock and large range of unexpected outcomes.’

EML share price out of favour

In spite of EML management’s commentary and Macquarie’s optimism, with almost a third of the company’s revenue at stake, its unsurprising that the stock was sold-off heavily by investors in response.

The day before that initial announcement, the stock closed at $5.15 per share, not too far off the company’s 52-week high. Investors rushed for the exit on the day of the announcement: the stock opened at $2.66 per share and at its intraday low was down as much as 52% from the prior close.

Over the next seven sessions the stock would rebound, if only somewhat, last trading around the $3.49 mark. At those price levels the stock remains down 37% in the last month.

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