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One Small-Cap Stock in the Donor Management Platform with Earnings Potential- PPH

Feb 23, 2022 | Team Kalkine
One Small-Cap Stock in the Donor Management Platform with Earnings Potential- PPH

 

Pushpay Holdings Limited

PPH Details

Directors’ Interest Notice: Pushpay Holdings Limited (ASX: PPH) is engaged in providing a robust platform for electronic payments, mobile commerce, and tools for merchants. On 18 February 2022, the company informed the market that Lovina Anne McMurchy, a Director in the company, had made an on-market acquisition of 85,000 fully paid ordinary shares for a consideration of NZ$85,178.50.

A Quick Look at Key 1HFY22 Highlights:

  • Increase Total processing volume (TPV): In 1HFY22, TPV stood at US$3.5 billion, up from US$3.2 billion reported in 1HFY21. 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 & Revenues: 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 (up 9% year over year).
  • Robust Customer Base: In 1HFY22, the company reported an increase of 29% in its customer base, from 10,896 Customers in 1HFY21 to 14,095 customers.

Gross Margin Highlights; (Analysis by Kalkine Group)

Risk Analysis:

 

  • COVID-19 Led Uncertainties: The global pandemic is likely to slowdown the progress of pipeline opportunities in New Zealand and Australia.
  • Forex Headwinds: The company is exposed to foreign currency fluctuations against the US Dollar as it has significant spending in New Zealand.
  • Insider Trading Risks: In a recent update, FMA (Financial Markets Authority) filed a court charge against two individuals concerning insider trading in shares of PPH.

Outlook: The company remains focused on engagement and ramping go-to-market resources for the Catholic segment. For the year ended 31st March 2022, the company expects EBITDAF in the range of US$64 million and US$69 million. Underlying EBITDAFI (excluding the costs related to investment into the Catholic initiative) is expected to be between US$62.0 million and US$67.0 million The company is targeting to acquire over 25% market share in the Catholic segment by several communities in the long-term.

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 ~48.37% in the past six months. Currently, the stock has a 52-week’s high and low level of A$1.935 and A$0.87, 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 at some discount as compared to its peers, considering the risk of technological investment due to advancements, foreign currency risk due to operations in the US, Australia, and New Zealand, integration risk, legal hassles, etc. For the purpose of valuation, peer group - Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), Bravura Solutions Ltd (BVS: ASX), and others have been considered. Looking at the robust 1HFY22 financial performance, growing customer base, ramping up go-to-market strategies, encouraging long-term outlook, current trading levels, valuation upside, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.87, down by ~3.334% as on 22 February 2022. We also suggest investors to consider the associated risks as well while taking such investment decisions.

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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