Euronet rebounds but warns on continued travel disruptions

Euronet’s merchant payments and ATM business continues its strong rebound from the pandemic but management warned that the ongoing disruption to European travel would be a restraint on growth into H2. 

Euronet is headquartered in Kansas but does most of its business outside the US. Overall revenue was up 18% in Q2 to $843m. The epay and Money Transfer divisions must be giving cause for concern with sales down 7% and up just 3% respectively but it’s the EFT Processing division which interests us at Business of Payments. 

EFT Processing revenue rose 119% from $113.5m to $249.0m. 80% of this is made in Europe. 

All metrics have moved strongly in the right direction. More transactions and more high margin transactions have been flowing through Euronet’s processing centres. Total transactions (POS + ATM) were up 59% at 1.573m while revenue per transaction grew 45% to $0.16. This reflects “the higher proportion of high value and high margin DCC transactions due to reduction of travel restrictions.”

Heading into the second half of the year, management called out several headwinds including strengthening USD, rising interest rates, inflation and staffing/operational issues in the travel industry. Michael Brown, CEO was particularly harsh on Heathrow. 

“Let’s not forget, travellers from the U.K. are by far the largest producer of high-value international transactions on our ATMs because every card has a cross currency component. So, the limiting of passengers to and from the British airports has had a more significant impact on our forecast.”

Euronet manages a total of 51,062 ATMs, some directly and some on behalf of 3rd party operators including banks. ATM’s were particularly badly hit by the pandemic but, despite early forecasts of the death of cash, have bounced back strongly in the recovery. Total number of ATMs grew 10% boosted by deals in India, Spain (with the Post Office to provide access to cash in rural locations) and a new independent network in Iceland. Revenue per ATM grew from $934 to $1696. 

Future deployments have been hit by operational problems. “We have been challenged with supply chain issues related to our ATM deployments. These issues range from manufacturers not delivering the machines on time to third-party resource issues installing them.”

In addition to the ATM’s, Euronet manages 570,000 POS terminals, mainly as an outsourced provider to banks. However, it took direct control of its estate in Greece during Q2 through the acquisition of the merchant services division of Piraeus Bank. This gives Euronet an estimated 40% share of the Greek POS merchant acquiring market and 20% of eCommerce. According to Euronet, new business is healthy – 5,000 merchants were signed in Q2 including some marquee names such as Ikea and TGI Fridays – and the transition to Euronet’s platform “has gone smoothly.” 

EFT Processing is highly geared. Revenue more than doubled but operating expenses rose just 40% which helped operating income swing into $54.8m profit from a loss of $25.3m in the same quarter of 2021. Investors will be hoping this rebound has further to go. Even at the new profit level, operating income margin in this division is just 7% and return on assets 4.1%.

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