EML Payments’ brand is beyond repair and the company should be sold, investor says

Activist investor Jeremy Raper has written to the EML Payments board arguing that the company’s brand is beyond repair and it should kick off a sales process.

Current EML Payments executive chairman Anthony Hynes.

The EML Payments board should immediately appoint advisors and put the business up for sale, activist investor and “long-suffering shareholder” Jeremy Raper says.

Mr Raper has written to EML executive chair Anthony Hynes, saying that in the wake of the company firing its newly-appointed chief executive Ron Hynes (no relation) in December, the board should “immediately hire bankers and conduct a full sales process’’.

The company’s shares traded as high as 84c as rumours of the letter’s existence leaked out into the market on Friday, before the stock closed 2c higher at 81.5c.

EML shares have traded as high as $1.27 during the past 12 months, and in early 2021 the stock was trading at levels around $5.70.

Mr Raper said in his letter he believes a sale process could generate a price of $1.50-$1.70 per share, or a 100 per cent premium to the current share price.

Wilson Asset Management recently increased its stake in EML from 8.6 per cent to 9.7 per cent, with the change lodged with the ASX on January 17.

QVG Capital is also a substantial holder of EML, with a 5.7 per cent stake.

EML did not make any statement to the ASX on Friday regarding the letter.

The company was on Monday contacted for comment.

Mr Raper said there were “many obvious financial and strategic reasons’’ for putting the company on the sale block.

“But the most salient one is this: after this most recent management debacle, whatever reservoirs of patience that remained amongst the investor base have been completely exhausted,’’ Mr Raper said in his letter.

“As such, EML will never achieve a reasonable valuation whilst it remains a listed entity - and because of this, it is imperative EML consider fully all strategic alternatives now, with the business cleansed of legacy issues, but before it embarks on the aggressive turnaround plan recently outlined.’’

EML sacked US-based Mr Hynes on December 23 after six months in the top job, with the board saying it needed different leadership to execute its turnaround plans.

Mr Hynes was championed by EML upon his commencement in the role on June 30 for his “impressive value creation track record, growth bias and proven leadership capabilities”, which were aligned to the needs of the company and marketplace.

He is the second chief executive to have recently departed the embattled payments group after a sweeping overhaul announced in April 2023 saw Emma Shand leave after only nine months in the job.

Non-executive chair Anthony Hynes, who also joined the company mid-last year, assumed the chief executive role, replacing Ron Hynes.

Anthony Hynes was founder and managing director of global payments business Nett International, which sold for $940m in 2020.

EML Payments operates in Australia, the UK, Europe and North America, and processes and program-manages physical, mobile, and virtual card solutions for gift disbursement, incentives and rewards, general purpose reloadable, and supplier payments.

The company booked a $26.5m loss for the 12 months to June compared to a $284.8m loss in the 2023 period.

Mr Raper said in his letter that EML’s brand was damaged beyond repair, meaning a business sale was the best course of action.

“Business turnarounds always carry risk, and here, with shareholder fatigue so palpable, the perceived out-year reward of a massive equity rerating (upon execution of the turnaround) is unlikely,’’ he said.

“The name ‘EML’ in the Australian public markets is, at this point, simply too tainted to fix. “Rather, the board should concentrate on delivering the certain value of a near-term sale at a huge premium to current prices - an outcome that would be welcomed, in my view, by the entire register.’’

Mr Raper said ever since former chief executive Tom Cregan left the company in 2022 after a 10 year stint, “shareholders have endured a cavalcade of mostly self-inflicted disasters’’.

These included the company’s “value-obliterating” acquisitions of PFS and Sentenial and the inability to keep a chief executive in place, “going through four different chief executives in a three year period”.

EMC Payments’ former boss Tom Cregan.

“Indeed, Mr Hynes’ hiring-then-firing only further underlines EML’s chronic inability to manage its affairs in a manner befitting a listed company,’’ Mr Raper says.

“The announcement came mere days before Christmas, delivered into an illiquid market and with nary an explanation - just a month after Mr Hynes had presented an ambitious, multi-year turnaround plan (‘EML 2.0’) as its key architect.

“While the shares promptly fell 20 per cent (and have barely recovered), the main reaction amongst the investor base was resignation rather than surprise. It is this entrenched, terminal apathy that necessitates a sale of the business.’’

Mr Raper said the stock is trading at just a five times multiple to earnings, which was among the lowest in the payments sector, “reflecting near-zero appetite for the ‘return to growth’ story currently being proffered to the market’’.

Mr Raper said he had compared the company’s trading multiple against several of its peers.

“Even accounting for important business model differences, and EML’s specific heavier reliance on interest revenue than some of these other comps, the disparity in valuation remains gargantuan,’’ he says.

Given the price he believes the company could fetch in a sales process, Mr Raper said it was imperative that the board at least present the idea to shareholders.

“I would also encourage you to canvas the opinions of other shareholders, both large and small, as I am quite confident you will find my sentiments echoed by all and sundry,’’ he said.

EML appointed Barrenjoey as advisors in early 2023 when it was considering a sale process, with private equity group Bain among rumoured interested parties.