Company Overview: Pushpay Holdings Limited (ASX: PPH) offers a robust platform for mobile commerce and electronics payments, along with tools for merchants to engage with customers. The company primarily emphasises the deployment and enhancement of mobile payment solutions. The company caters to numerous different sectors such as faith sectors, corporate organisations and non-profit organisations and enterprises, both small and medium.

PPH Details

PPH Rides on Revised Guidance & Decent Operational Performance: Pushpay Holdings Limited (ASX: PPH) provides donor and church management systems that include donor tools, finance tools and a custom community app. The market capitalisation of the company stood at ~$1.77 Bn as on 19 February 2021. In FY20, the company made decent progress in its strategic goal of becoming the preferred provider of mission-critical software to the US faith sector. During the year, the company reported revenue amounting to US$129.8 million, reflecting a rise of 32% over pcp. This was supported by the targeted implementation of its strategy, growing team capabilities and expertise, and responsible investment into product design and development.

Looking at the performance over the period of FY15-FY20, the company’s top-line reported a CAGR of 134.26%. Annualised processing volume (APV) in FY20 stood at US$5 billion, up 39% year over year. APV represents the annualised four-week average payment transaction volume through the company’s volume, where revenues are derived from. The volume also increased substantially in the prior year as the company delivered on its robust strategy to increase the number of medium and large customers on its platforms. Going forward, the company is eyeing future growth in the APV via a large proportion of such customers, product development, and enhanced digital adoption. Further, the company’s strong sales strategy remains on track to attract a larger number of medium and large customers and cross-selling products to existing customers while growing ARPC and increasing retention.

Past Performance (Source: Company Reports)

The company aims to drive revenue growth through continuously delivering on its strategies, in order to grab further market share in the medium-term while maintaining a proper balance via expansion of operating margin. PPH intends to boost its revenue while simultaneously maintaining cost discipline throughout its business operations and remains on track to evaluate potential strategic acquisition to add further value to the business.

1HFY21 Key Highlights: Coming to 1HFY21, the company reported operating revenue amounting to ~US$85.6 million, reflecting a rise of 53% over 1H FY20. Total revenue amounted to US$86.6 million, up from US$57.4 million, from the year-ago period. Net profit for the half-year stood at US$13.4 million as compared to US$6.48 million. In 1H FY20. EBITDAF for the period came in at US$26.7 million, depicting an increase of 177% year over year. Groups gross profit margin came in at 68%, up from 65% reported in 1HFY20. At the end of the half-year, the total customer of the company stood at 10,896, which comprised 8,489 in Donor Management System and 4,236 from Church Management System.

Results Highlights (Source: Company Reports)

Robust Customer Base: During the period, the company reported an increase of 38% in its customer base from 7,905 Customers in 1HFY21 to 10,896 Customers in 1HFY20. Total LTV of customer base in 1HFY21 stood at US$4.5 billion, up 43% on a year over year basis. The company’s proportion of medium and large Customers stood at 57% at the end of 30 September 2020, up from 56% at the end of prior corresponding period. The company remained on track to witness an increase in subscription revenue, owing to the Customers current purchasing power. Gross monthly recurring revenue (MRR) in 1HFY21 was higher than the similar prior period. Despite the COVID-19 led uncertainties, the company is adapting to the evolving situation, thanks to its donor management and church management solutions. As at 30 September 2020, 98% of the company’s customers were situated in North America, which covers the US and Canada. The remaining 2% were located in other jurisdictions. In addition, the company recorded a total processing volume of US$3.2 billion, depicting an increase of 48% year over year.

Total Processing Volume (Source: Company Reports)

Recent Updates: In a recent update, the company announced that it has appointed Molly Matthews as Chief Executive Officer of the company, effective from 1 March 2021.

Top 10 Shareholders: The top 10 shareholders together form around 46.74% of the total shareholdings while the Top 4 constitutes the maximum holding. Christopher & Banks Private Equity Limited is the entity holding maximum shares in the company at 15.67%. Harbour Asset Management Limited is the second-largest shareholder, with a holding of 4.49%, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Chart Created by Kalkine Group 

Balance Sheet & Liquidity Position: The company exited 1HFY21 with a cash balance of US$23.11 million. Total debt (lease borrowings) amounted to ~US$50.96 million at the end of the period. During 1HFY21, the company generated an operating cash flow amounting to US$8.9 million, indicating an increase of 203% on prior corresponding period cash flow of $12.1 million. For 1HFY21, the company reported gross margin, EBITDA margin and net margin of 68.1%, 31.4% and 15.7%, respectively. Gross margin and net margin stood higher than the respective industry medians. This indicates a better profitability position in comparison to the broader industry. ROE of the company for the same time span stood at 21.4%, higher than the industry median of 4.5%. Debt to equity ratio for the period stood at 0.71x, lower than the 2HFY20 of 1.15x.

Past Years Financial Performance for Year Ending 30 June

Profitability and Leverage Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group

Key Risks: The company is exposed to foreign currency fluctuation risk against the US Dollar as it has significant spending in New Zealand. Consequently, the financial statements can be affected by movements in the NZ Dollar. The company also increased investment in R&D to achieve its growth plan. Further, the COVID-19 led uncertainties increases ambiguity and is likely to slow the progress of pipeline opportunities in New Zealand and Australia. Also, stiff competition from peers, and a leveraged balance sheet remain potential concerns.

Outlook: For the year ended 31^st March 2021, the company now expects EBITDAF in the range of US$56.0 million and US$60.0 million as compared to the previous guidance range of US$54.0 million - US$58.0 million. The company also remains on track to invest higher on resource for the development and enhancement of customer proposition for the Catholic segment of the US faith sector. The company further expects strong revenue growth, owing to the higher market share gains in the medium-term. The company opinions this is the best way to maximise shareholder value. The company is also ensuing efficacy and is maintaining cost discipline throughout the business. In the long-term, the company targets more than 50% of the medium and large church segments, an opportunity representing more than US$1 billion in annual revenue.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Currently, the stock is trading above the average of its 52-week’s high and low level of $2.272 and $0.6, respectively. The stock of the company went up ~13.9% in the past one month. On a technical analysis front, the stock has a support level of ~$1.422 and a resistance level of ~$1.912. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its geographical expansion, strong sales pipeline, decent 1HFY21 key numbers, and revised guidance. For the purpose, we have taken the peer group - Afterpay Ltd (ASX: APT), EML Payments Ltd (ASX: EML), to name few. Considering the strong financial performance, robust customer base and encouraging long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $1.63, up by ~1.557% as on 19 February 2021.

PPH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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