On Tuesday, RBC (TSX:RY) Capital upgraded shares of EML Payments Ltd (EML:AU) (OTC: EMCHF), shifting the rating from Sector Perform to Outperform, while also increasing the price target to AUD1.20, up from the previous target of AUD0.90. The upgrade comes after the analyst's review of EML Payments' medium-term strategic update.
The strategic update from EML Payments highlighted a series of financial adjustments and goals. Notably, the company anticipates achieving cost savings between $10 million and $15 million, which is expected to counterbalance annual cost inflation.
Moreover, the firm has experienced stronger-than-anticipated transaction revenue growth, and it plans to embark on a one-off capital expenditure program estimated to cost between $12 million and $15 million. This program is intended to consolidate multiple platforms.
In response to these updates, RBC Capital has adjusted its financial models for EML Payments. The firm has taken a more cautious approach, with conservative estimates for operating costs and capital expenditures. This is due to the potential execution risks associated with the company's three-year implementation timeline for its strategic initiatives.
Despite the conservative stance, RBC Capital's forecasts for EML Payments' future earnings before interest, taxes, depreciation, and amortization (EBITDA) remain optimistic, albeit below the company's own target. For the fiscal year 2028, RBC Capital projects an EBITDA of $82 million for EML Payments, which is under the company's goal of $95 million.
The upgrade and revised stock price target reflect the analyst's confidence in EML Payments' strategic plan and its potential to drive growth and profitability over the medium term. The new price target of AUD1.20 represents an increased valuation of the company's shares based on the latest financial and strategic developments.
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