Mercer actuary David Knox says the data used to determine the old age dependency ratio is “totally out of date” and overstates the severity of the problem.
From their inception, SMSFs have always attracted more than their fair share of criticism. Now it’s an ageing membership that’s being used to restrict their numbers.
The pandemic has accelerated the move to a cashless society
Almost overnight when COVID-19 hit, Australian businesses switched to a cashless world to conduct business transactions and accept payments that would otherwise have been completed using physical cash. The switch to cashless – or rather, the rapid acceleration of what had been a slow trend – occurred out of necessity rather than choice. As the pandemic swept through, health and safety concerns among business owners started to change, with concerns about cash handling and spreading the virus increased the use of cashless payments. Amid the pandemic, one in three businesses reported that they no longer accepted cash due to fears that physical notes were contaminated.
According to research by market analyst East & Partners, the number of cash payments received by Australian merchants dropped by 46 per cent between 2010 and 2016. Fast-forward to today and that figure is less than 10 per cent of all payments following the coronavirus pandemic. If these trends were to continue, we could see the proportion of payments that Australian businesses take in cash form fall to 2 per cent by 2022-2024, thereby creating an almost cashless society that will use electronic payments, mostly through a smartphone, for goods and services.
Global firm Research and Markets forecasts Australia to become cashless by 2022. With that in mind, one company stands out as a potential beneficiary.
EML Payments (ASX:EML)
EML Provides payment card technology solutions including digital solutions for payments, gift cards, incentive, reward cards, and supplier payments. It also focuses on building strategic partnerships with businesses to create revolutionary payments as a service technology for digital commerce. According to management, “the company built a Software Development Kit (SDK) and white-label solution which would work across Apple, Google, and Samsung Pay products, enabling the delivery of instant gift and reloadable Mastercard products directly into consumers’ digital wallets.”
The company operates in three areas:
- General purpose reloadable – Branded cards that store customer account credit. These cards can hold credit that can easily be transferred to a customer’s bank account. For example, cards from online bookmakers like Ladbrokes, used to transfer betting winnings to their customers.
- Branded gift cards. EML is the biggest provider of shopping centre gift cards in the world. Delivers tailored solutions based on the customers’ requirements.
- Virtual account numbers. A secure way of facilitating payments via unique, single-use card number. This way each customer’s real account number is kept private.
Broker Wilsons has an ‘overweight’ recommendation with a $4.55 price target. It conducted a survey into US Consumer Mall Gift Cards and Simon Property Group Malls, and found that 70% of the respondents would buy a gift card instead of a present this year and more than half (59%) of the survey participants said they “were likely” to buy a gift card last holiday season. This survey leads the broker to think that the “gifts and incentives” business (gift cards) has the potential to surprise on the upside in FY21.
EML was badly hit during COVID-19, with more than three-quarters of its market value wiped off during the pandemic. Since then, the stock has recovered more than 300 per cent from a calendar-year low of $1.20 to $4.98 at today’s prices. The company has done remarkably well on the road to recovery but isn’t out of the storm yet. With the majority of EML’s revenue coming its shopping mall gift card segment, where gift cards are sold throughout malls in Europe and North America, the business is heavily exposed to the US and European market, the latter of which is currently exposed to various levels of lockdown.
For the six months ended 31 December 2020, EML reported a 54 per cent surge in group gross debit volume to $10.2 billion, which led to a 61 per cent jump in revenue, to $95.3 million. Margins shrank slightly, flowing through to group earnings before interest, tax, depreciation and amortisation (EBITDA) lifting by 42 per cent, to $28.1 million, and net profit growing by 30 per cent, to $13.2 million.
With the vaccine rollout proceeding at record pace, we can expect a gradual slowdown in COVID-19 cases to lead to a gradual return of foot traffic to shopping centres in US and Europe. EML will be a major beneficiary of foot traffic returning and the company’s share price will continue to lift as businesses re-open. Estimates for operating earnings have come down a bit for FY21, but brokers are assessing that FY22 will probably be a more normal year. Market estimates are for EBITDA to rebound 40% in FY22, to $74 million.
