Company Overview: Pushpay Holdings Limited (ASX: PPH) is engaged in providing a strong platform for electronics payments, mobile commerce and tools for merchants. The company is also involved in the deployment and enhancement of mobile payment solutions. PPH caters to numerous different sectors such as faith sectors, corporate, and non-profit organisations, and serves both small and medium enterprises.

PPH Details

PPH Rides of Decent Operational & Financial Performance: In FY21, the company remained on track to witness an increase in subscription revenue, owing to the customers’ current purchasing power. The company continue to pursue mergers and acquisitions to bring innovation in its product offerings. Additionally, it had ventured into the Catholic market with an aim to add value to its businesses.

A Quick Look at FY21 Results:

• Rise in Revenues: In FY21, the company reported total revenue of US$181.1 million, up 39% year over year, owing to realisations of strategic cross-selling opportunities within the customer base and operational efficacy across the combined business.
• Higher EBITDAF: The company delivered on its guidance, and increased EBITDAF from US$25.2 million in FY20 to US$58.9 million in FY21, depicting a rise of 133%.
• Increase in Total Processing Volume (TPV): In FY21, TPV stood at US$6.9 billion, up from US$5 billion reported in FY20. The volume increased substantially as the company delivered on its robust strategy to increase the number of medium, large, and small customers on its platforms.
• Improvement in Net Profit After Tax (NPAT): In FY21, PPH’s NPAT stood at US$31.2 million, up 95% year over year, owing to enhanced focus on cost-cutting initiatives and a higher revenue base.
• Increase in Average Revenue Per Customer (ARPC): During FY21, ARPV stood at US$1,475 per month, depicting an increase of 12% year over year.
• Robust Customer Base: In FY21, the company reported an increase of 2% in its customer base, from 10,896 Customers in FY20 to 11,099 customers. Total Life Time Value (LTV) of customer base in FY21 stood at US$5.3 billion, up 20% on a year over year basis.
• Rise in Gross Profit Margin: In FY21, the company’s gross profit margin stood at 68%, up from 65% reported in FY20.
• Acquisition Synergies: Post the completion of the Church Community Builder buyout in December 2019, the company’s main focus remained on combining the two solutions to grow its Total Product Holdings (up 10% year over year in FY21).

The below picture depicts growth momentum in the company’s Total Processing Volumes. 

TPV Highlights; Analysis by Kalkine Group

Balance Sheet Details & Key Metrics: The company exited FY21 with a cash balance of US$4.84 million. During FY21, the company generated an operating cash flow amounting to US$57.6 million, up 145% year over year. In FY21, the company used US$57 million of cash from operating activities to refund the bank debt that was raised to finance the acquisition of Church Community Builder. For FY21, the company reported gross margin, EBITDA margin, and net margin of 67.9%, 33.1%, and 17.5%, respectively. These margins stood higher than the respective industry medians.

Growth and Profitability Profile; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 48.02% of the total shareholdings while the Top 4 constitutes the maximum holding. Sixth Street Partners, LLC is the entity holding maximum shares in the company at 17.76%. Mawer Investment Management Ltd. is the second-largest shareholder, with a holding of 6.04%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• COVID-19 Led Uncertainties: The global pandemic is likely to slow the progress of pipeline opportunities in New Zealand and Australia.
• Stiff Competition: The company operates in a highly competitive environment, subject to significant ongoing changes, including business consolidations, new strategic alliances, market pressures, and regulatory and legislative pressures.
• Forex Headwinds: The company is exposed to foreign currency fluctuations against the US Dollar as it has significant spending in New Zealand.

Outlook: The company remains focused on engagement and ramping go-to-market resources for the Catholic segment. For FY22, the company’s investment into the Catholic segment is anticipated to be between US$6.0 million to US$8.0 million, realising incremental benefit on a year-over year basis. For the year ended 31^st March 2022, the company expects EBITDAF in the range of US$64 million and US$69 million. The company is targeting to acquire over 25% market share in the Catholic segment and donor management systems over the next five years. The company also continue to grow its ARPC by implementing its sales strategy to gain new customers and increasing revenue from existing customers.

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

Source: 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: The stock of the company has been corrected by ~3.06% in the past six months. Currently, the stock has a 52-week’s high and low level of A$2.250 and A$1.405, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade some premium as compared to its peers’ average, considering its geographical expansion, strong sales pipeline, acquisition synergies, and decent outlook. For the purpose of valuation, few peers like Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), Bravura Solutions Ltd (BVS: ASX) have been considered. Looking at the strong financial performance, robust customer base, ramping up go-to-market strategies, repayment of debt, encouraging long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $1.565, up by ~1.623% as on 20 August 2021.

PPH Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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