Pushpay Holdings Limited

PPH Details

Pushpay Holdings Limited (ASX: PPH) develops mobile payment platforms and mobile commerce applications. It caters to the faith sector, non-profit organizations, small and medium enterprises, and corporate organizations. PPH was listed on ASX on October 12, 2006.

H1FY22 Results Highlights:

• Increased adoption of digital platforms and onboarding new customers drove the subscription revenue growth of 14% in six months ending September 2021 over PcP.
• PPH maintained its average Annual Revenue Retention Rate of over 100% consecutively over the last five periods despite the pandemic.
• The acquisition of Resi Media gave a strong foothold in the US faith sector, with over 70% of the largest 100 churches using Resi products.
• The total customer base touched 14,095 in H1FY22, up from 10,896 posted in the previous year. About 18,229 products were purchased by customers during the period, up by 43% over PcP.
• PPH believes it has opportunities in Catholic services with estimated annual revenue of over US$330 million.
• The company maintains a consistent gross profit margin reaching 69% in H1FY22 over 68% in H1FY20. High adoption of SaaS in product offering helped to clock a 12% uptick in underlying EBITDAFI, reaching US$29.6 million.
• PPH closed the period with a cash balance of US$7.70 million as of September 30, 2021. The company has been increasingly investing in technology and product design development teams. It had borrowed about US$90 million to tie over the Resi Media acquisition and repayment in connection to the Church Community Builder acquisition.

Recent Developments:

• Mawer Global Small Cap Fund ceased to be a substantial holder with voting rights declined from 5.183% to 4.992%.
• On September 27, 2021, PPH announced the appointment of Sumita Pandit and John M. Connolly as Directors with immediate effect.

Gross Margin Trend (Source: Analysis by Kalkine Group)

Key Risks: PPH has significant exposure to New Zealand, and as a result, it has volatility risk related to foreign currency movements and conversion. Change in spending by church communities may alter the revenue growth. Change in demographics may hamper digital adoption.

Outlook: PPH is targeting to acquire over 25% market share in the Catholic segment. It is anticipating FY22 investments to be lower than originally estimated due to a shortage of labour. PPH is expecting underlying EBITDAFI to be in the range of US$60-65 million for FY22. Without cost associated with investment on catholic initiatives, underlying EBITDAFI to be US$62-67 million.

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

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: Over the last six months, the stock has corrected by ~29.09%. PPH just recovered from its 52-week low price of A$1.160. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight premium to its peers, considering the benefits of Resi Media acquisition and Catholic initiatives. For the valuation purpose, peers such as Humm Group Ltd. (ASX: HUM), WISR Ltd. (ASX: WZR), Perpetual Ltd. (ASX: PPT), and others have been considered. Considering the healthy customer addition, average Annual Revenue Retention Rate of over 100%, consistent gross margin, decent cash position, upside indicated by the valuation, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of $1.170 as on 20 December 2021, down by ~2.501%.

PPH Daily Technical Chart, Data Source: REFINITIV 

MSL Solutions Limited

MSL Details

MSL Solutions Limited (ASX: MSL) provides SaaS-based ordering and payment solutions catered to the sports, leisure and hospitality sectors. It operates in three segments, namely, Asia Pacific, United Kingdom and Denmark. MSL was listed on ASX on May 4, 2017.

Tie-up Arrangements:

• On November 25, 2021, MSL tied up with Doshii to provide OrderMate venues to connect point-of-sale with an array of hospitality apps such as pick-up and delivery, in-venue ordering, rostering and reservation apps.
• This is the second agreement executed with Doshii after March 2021. This coalition is expected to contribute over A$800k over the next five years in addition to A$1.3 million over five years as per the initial agreement dated March 2021.

Q1FY22 Trading Update:

• MSL posted Q1 revenue growth of 40% to reach A$7.7 million, aided by UK business and favourable contribution by SwiftPOS, which was acquired in November 2020.
• Major upgrades in stadiums and venues, particularly Manchester City FC and ASM Global, posted easing of lockdown in the UK aided the growth.
• Recurring revenues grew by 25%, and MSL added 120 new venues during September 2021 through the inorganic route. It had received a major order from the Logan City Council, Brisbane and LK Group for SwiftPOS during the quarter.
• It had clocked normalized EBITDA of over A$1 million and posted positive operating cash flow.
• MSL inducted Taubman Capital through the issuance of A$4.5 million unsecured and convertible notes. It had closed the period with a cash balance of A$5.5 million,

An uptick in Asset Turnover Ratio (Source: Analysis by Kalkine Group)

Key Risks: Power outages, security breaches, cyber-attacks, and hacking may adversely affect the operations. Increasing competition in SaaS offerings may limit MSL market expansion opportunities. The increasing acquisition may complicate the integration process, and any delay may affect the synergy realization and hinder the profitability.

Outlook: Acquisition of OrderMate on September 30, 2021, will unlock revenues of A$50k per month and will see a considerable expansion in digital revenues. Its recently developed OrderAway has achieved a transaction value of over A$1 million in Q1FY22. Through the integration of Doshii to SwiftPOS, Hungry Hungry to OrderMate will see revenue from third-party apps to surge.

Stock Recommendation: Over the last six months, the stock delivered gains of 77.78%. It is trading above the average of the 52-week low and high price of A$0.110 and A$0.285, respectively. On a TTM basis, the stock has been trading at an EV/Sales multiple of 3.7x, lower than the industry average of 5.7x (Software & IT Services). This implies the stock is undervalued at the current price level. Considering the potential opportunities of OrderMate, recent contracts, burgeoning UK business, valuation based on TTM, current trading levels, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.240 as on 20 December 2021.

MSL Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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