Company Overview: Pushpay Holdings Limited (ASX: PPH) provides a robust platform for electronic payments, mobile commerce, and tools for merchants. The company’s solutions help to simplify engagement, payments, and administration, thus enabling its customers to boost participation and build deeper relationships with their communities. PPH caters to numerous sectors such as faith sectors, corporate and non-profit organisations, and small and medium enterprises.

PPH Details

Robust Customer Base & Acquisition Synergies Aids PPH: In 1HFY22, the company delivered Total Processing Volume growth, robust revenue growth, net profit and EBITDAFI growth, along with providing sustainable margins and underlying operating metrics. In addition, it enhanced the number of products purchased, added new customers, and completed the strategic acquisition of 100% of the ownership interests in Resi Media LLC (‘Resi’), thus improving its existing product suite.

Digging into 1HFY22 Highlights (For the Period Ended 30 September 2021):

• Increase in Operating Revenues: In 1HFY22, the company reported operating revenue of US$93.49 million, up 9% year over year. PPH increased operating revenue by 7% (excluding the impact of Resi Media buyout) due to the growing number of products purchased by customers, the addition of net new customers, and operational efficiency across the combined business.
• Rise in EBITDAF: The company increased EBITDAF from US$26.7 million in 1HFY21 to US$26.9 million in 1HFY22, depicting a rise of 1%. Underlying EBITDAF in 1HFY22 stood at US$29.6 million, depicting a rise of 12% year over year.
• Robust Growth in Total Processing Volume (TPV): In 1HFY22, TPV stood at US$3.5 billion, up from US$3.2 billion reported in 1HFY21, depicting an increase of 9% year over year. 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.

• Higher Net Profit After Tax (NPAT) & Gross Margins: In 1HFY22, PPH’s NPAT stood at US$19.13 million, up 43% year over year, owing to enhanced focus on cost-cutting initiatives and a higher revenue base. The company remains on track to enter its next growth phase, with gross margin increasing from 68% in HFY21 to 69% in 1HFY22.

• Increase in Average Revenue Per Customer (ARPC) & Average Annual Retention Rate: During 1HFY22, ARPC stood at US$1,348 per month (excluding Resi Media acquisition), depicting an increase of 7% year over year. Despite the impact of the COVID-19 outbreak, the company maintained an average Annual Revenue Retention Rate of more than 110% for the last five years, including the last period, 30 September 2021.

• Robust Customer Base: In 1HFY22, the company reported an increase of 29% in its total customer base, from 10,896 Customers in 1HFY21 to 14,095 customers. Total LTV of customer base in 1HFY22 stood at US$5.4 billion, up 20% on a year over year basis. During the period, total products purchased by customers rose by 43% year over year and came in at 18,229.

• Resi Media Acquisition: Recently, the company completed the strategic buyout of Resi Media for a consideration of US$150 million in cash and Pushpay shares. The addition of Resi Media aids PPH to expand its core product offering and boosts its digital technology strategies.
• Balance Sheet Details: The company exited 1HFY22 with a cash balance of US$7.7 million, up from US$4.84 million reported at the end of 31 March 2021. During the period, the company generated an operating cash flow amounting to US$30.82 million, up 14% year over year. 

The below picture depicts growth momentum in the company’s total customer base.

Customers Highlights; Analysis by Kalkine Group

Key Metrics: For 1HFY22, the company reported gross margin, EBITDA margin, and a net margin of 68.3%, 29.1%, and 20.7%, respectively. Gross margin, EBITDA margin, and a net margin stood higher than the respective industry medians.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 46.53% 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 17.21%. Mawer Investment Management Ltd. is the second-largest shareholder, with a holding of 5.86%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis:

• The company’s financial performance might get impacted by caution in buying behaviour. Thus, retaining robust and long-term customer relationships is a challenging task.
• The global pandemic is likely to slow the progress of pipeline opportunities in New Zealand and Australia. Owing to the impacts regarding the COVID-19 outbreak and the broader uncertainties in the US economic environment, the company has lowered its underlying EBITDAFI guidance for FY22.
• The company is also exposed to foreign currency fluctuation risks and stiff competition from peers, who develop similar product lines and services.

Outlook: Given the sustained growth in the number of donor management system products used by customers, and the higher enhanced level of digital penetration by PPH’s customer base, it expects to increase its Total Processing Volume in the days ahead. The company expects to maximise its shareholder’s value through continued revenue growth, innovation of its Products, bundling Products for existing and new Customers, Resi Media integration and expanding into the Catholic market. For the year ended 31 March 2022, the company has lowered its underlying EBITDAFI guidance. It now expects it to be in the range of US$60.0 million and US$65.0 million, compared to the previous EBITDAFI guidance of US$64 million and US$69 million, owing to the impacts regarding the COVID-19 outbreak and the broader uncertainties in the US economic environment. Not taking into consideration the costs related to the investment into the Catholic program, the company predicts underlying EBITDAFI for FY22 to be between US$62.0 million and US$67.0 million. In the long-term, PPH continues to grow in its ARPC by implementing its sales strategy to gain new customers and increase revenue from existing customers.

Valuation Methodology: EV/EBITDA 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 ~18.44% in the past one month. Currently, the stock has a 52-week’s high and low level of A$1.935 and A$1.370, respectively. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering lower EBITDAFI guidance for FY22, forex headwinds, loss of key customers, integration risks, etc. For the purpose of valuation, peer group - Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), and others have been considered. Looking at the decent 1HFY22 financial performance, robust customer growth, ramping up go-to-market strategies, buyout synergies, current trading levels, and modest long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $1.395, as of 12 November 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

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:-

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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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