PPH - PushPay (Church/donor software.)

[BlackPeter]

Great to see this stock moving up! Getting close to my break even point....

Absolutely! Much better to see the Bible belt dwellers feeding their faith industry (and PPH clipping the ticket) instead of throwing their money at the loser in the WH.

On a second thought - Shouldn't PPH offer their services for pseudo religious political donations as well?

I hear Trump collected over the last 4 weeks more than $200m from his flock. Would be nice to see PPH get a cut from that money as well, wouldn't it?

Food for thought.

[sb9]

Great to see this stock moving up! Getting close to my break even point....

Looks like new uptrend started driven mainly from Aus side of things...

[nztx]

Looks like new uptrend started driven mainly from Aus side of things...

current SP levels are probably a bit more palatable than the over $9 pre split ..

[dreamcatcher]

PPH Quietly keeps chugging along.............nice

Trump collecting 200m you say BP that's a disgusting amount..............what can possibly go wrong with American Presidential selections

[JSwan]

PPH Quietly keeps chugging along.............nice

Trump collecting 200m you say BP that's a disgusting amount..............what can possibly go wrong with American Presidential selections

How about people use PPH to donate money to "The Donald" after he steps down in January, I mean technically he becomes a "God" as he will no longer be the president, right

That'll be a nice increase in number of customers (Trump Twitter followers) for PPH

[Sir Ten]

Have had a chance to read FBarr's recent initiation of coverage on PPH which had a target price of ~$12.40/share. Not sure who does or doesn't have access to the research but it's not my place to share it on this forum, however for context, the executive summary reads:

"We initiate coverage of Pushpay (PPH) with an OUTPERFORM rating and target price of NZ$12.42. PPH is the current market leader in providing customised, innovative giving technology for large US churches. This is confirmed by discussions with over 50 churches, industry experts and competitors. PPH is well placed to benefit from the ongoing consolidation of US churches and thematic shift towards digital giving, accentuated by COVID-19. For example, one PPH competitor we spoke to generated more sales in the first two months of COVID-19 than the whole of 2017 and 2018 combined. In recent months online 'pyjama church' has been a hit, with many US churches looking to continue online services longer-term. With 98% of customers in North America there is also optionality for expansion in new markets. We believe the risk to FY21 EBITDAF guidance is to the upside due to sustained church customer donation volumes and cost stability across the business"

Having read it, I'd be interested in others' perspectives, with my comments below:

It’s a bold initiation of coverage from an analyst who’s only been at FB for a couple of months… but taking the executive summary at face value, he appears to have dug quite deep and spoken to a number of useful parties. My key takeaways were:

• The blended valuation of ~$12.40 is a bit misleading for me. The DCF is $9.22 (assuming a WACC/CoE of ~9%) with the multiple valuation of around $14. I don't know about others on this forum, but I'd be expecting a higher return than 9% for every dollar invested in PPH at current prices, relative to the risk. Sure the multiples for comps are higher, but hard to find a strong comparable for PPH in my view. Maybe some validity to this?
• As I read through it, I felt like some of the assumptions were a bit stretched. I’m probably more naturally pessimistic, and I try moderate that where I can, but it suggested to me that there was a number of risks to the downside (particularly around suppressed economic conditions and declining church participation) TBD, but potentially not unrealistic.
• Regardless, I’ll probably hold for now as the one thing that is irrefutable with PPH is that their corporate communications and reputation for beating expectations is consistent – therefore, happy holder of my remaining PPH having recovered a reasonable profit already (this is quite important - I've made slightly more than my investment back already and it's a moderate amount of capital I'm willing to risk) This is what I did, and always easier to hold a residual shareholding when you've got your moola back, but I must admit the management/board changes and insider selling are now at a level which suggest to me that it's a peak more than a plateau.

Other comments as I read through:

• Market share of ~5% suggests plenty of growth left, but with them having 58 of the top 100 churches already, I do think that the forecast revenue growth (doubling in 2-3 years) could be slower and/or more expensive to obtain 58 of the top 100 seems relevant following the results announcement.
• The report talks about consolidation of churches. Any idea what drives the consolidation of churches? Seems an odd concept within the context of faith – I would’ve thought there’d be reasonable resistance to consolidation from parishioners looking to maintain their sense of a consistent community… I suppose churches are no different to any other “business” and there’s meaningful economies of scale from consolidation? I'm not sure there's ever going to be more than 100 top churches - i.e. I think the top 100 today are the top 100, and the likelihood of medium churches converting to large/mega is low
• Americans are a great god-fearing people – but will current numbers hold into the future with millennials etc? There's an interesting chart (on page 6 for those who have it) showing a considerable decline in the number of adults with a religious affiliation - near 95% back in 1916, dropping to ~87% in 1996 and something like ~75% in 2018... I worry that the declining trend is accelerating to the point where tithing / donations is a genuine uphill battle Big concern for me. I contrast this to retirement villages. Plenty of people getting older, so they're swimming with the tide. This is genuine headwind. Interesting side note, my Summerset returns are looking quite lucrative relative to PPH following the above post
• It sounds like Covid has really helped accelerate the transition to mobile/online giving – they note an expected resistance of parishioners reverting back to cash donations. Americans are a bit weird how they frequently use cash (and believe they don’t need to take virus precautions because God will save them from Covid) but I expect there could be some flattening or even a slight reduction to the proportion of electronic vs. cash donations. I also think the natural tension here is that those familiar/savvy with digital giving are one generation younger, and that younger generation appear to be attending church less/not-at-all Genuine concern remains. I'm starting to think we've got all we can get from the digital transition.
• The return on investment/cost for churches appears to be high. Suggests potential upside from those churches not yet using PPH
• Competition always worries me a bit with these tech companies as (1) I don’t fully understand how they work and what makes them better than others and (2) it’s always hard to know/see/find information about the others Easy looking back, but probably a real concern.
• That WACC and equity beta of 8.9% and 0.95, respectively look low. The WACC is actually the cost of equity as they have no debt. I don’t invest on the basis of a ~9% return in PPH. I’d say it’s pretty close to fair value with an equity beta of 1.0 - 1.1. That said, DCF valuation on something like this can be pretty uncertain/imprecise It's all theory, but not unhelpful guidance.
• Chart to the top left on page 4 (yes, I know, annoying I can't share) – but if you reduce the sales growth rate down from 16% to 13% (quite a small change), EV/sales multiple looks fairly valued. Very sensitive to sales growth. Appears quite relevant.
• Covid driven recession/unemployment has to be a concern to growth in the short-term. If that’s already priced, then there’s potentially upside... but my personal view is that there's more downside to come. TBD.
• Red herring which I'll throw out there. I don’t think they’ve identified, the risk of pastor fraud / largesse (particularly with big churches) – think Kenneth Copeland (https://www.youtube.com/watch?v=vColOxUf-8s). The guy owns multiple private jets and says flying commercial is like getting into a tube with demons. These guys are a bit like Teflon, but an expose could sink some of the big churches. Maybe a minor/marginal risk but not great for church reputation and somewhat taints all churches. Also, what happens when a key pastor dies/leaves/retires… I assume they are good at training up new pastors and having multiple people leading the services/church but I wonder if it has any effect? Like the colour of this text, still a herring.
• No non-US market growth – I expect when they start talking about other countries/markets, then it’s probably time to sell as that growth will be much slower and smaller and would suggest they’ve tapped the US. In some respects, that’s why I’m not sure this will ever be as big as Xero. Small business accounting is ubiquitous (consistent markets, languages, locations etc.). Xero has a much bigger market, but offset by more competition. Re-reading this is kind of interesting, not because they're talking about new markets (which I'd love to hear others' views on) but more that there's more talk of smaller customers.

Where I stand:
- Insider sell-downs all seem reasonable and rational Revised my view to negative from positive/neutral
- Still more upside in share price, albeit I think it's flattening/slowing - I'm not a buyer at current prices, but easier to hold when my entry was down around $3's Not a buyer. Heavily weighted to selling.
- PPH investor relations are exceptional Starting to wonder - plenty of uncertainty, management/director changes and softer reporting
- Cost of equity / risk is quite a key input to any investor's assessment of the current share price (particularly any longer term holder) - without having replicated FBarr's modelling, a higher cost of equity probably suggests current share price of $7-9 is around fair value for me personally If anything the theoretical cost of equity has reduced off the back of lower interest rates, but I think this is more than offset by a higher beta and/or lower growth.
- I'm not a trader (don't have the time or wherewithal to manage the info flow to "pick" the market), so I don't tend to enter and exit which may negate some of the points I make above for those more inclined to move in and out of the market

Open to the floor.

Back in August I wrote the above when PPH was trading at around $1.93/share (adjusted for the share split). Price today is around $1.89/share. So i'm starting to wonder whether this is a plateau or a peak. Therefore, thought it was worth revisiting the above comments, adding some updated views and getting others' input on where the business sits today.

Probably worth noting that in the interim I haven't done anything with my shareholding - no particular rhyme or reason to that, but my general investment approach is tilted more towards value investing than trading - that's not really a suggestion that one is better than the other, I just don't really have the time or "skill" to pick the ups and downs with any real accuracy, hence I'm biased towards picking good companies, with good management that I can afford to not monitor on a daily/weekly basis. At times I do worry this is a bit dangerous as I do think investors need to digest and respond to market and company changes as they arise, but as noted, I try and "protect" myself from being reactionary by buying companies that don't require significant oversight.

That said, you make money two ways - when you buy and when you sell. I'm better at buying than selling but paper gains are just that... on paper. Anyway, onto my views on PPH and apologies in advance for the lengthy post.

Digesting the most recent broker reports and company announcements

- Starting with ForBarr (which was the catalyst for the above post given their $3.10/share recommendation (again, adjusted for the split))
- On the 11th of Nov FB downgraded their recommendation mainly on the basis that "[FB] previously took the view that the market was underestimating the growth opportunity in regards to penetration of large US megachurches, with the company estimating a 25% market share in July 2020. However, it has become clear that penetration of US megachurches is now saturated and we cite increasing uncertainty over PPH's front book in view of its shifting focus towards smaller churches and the Catholic market — segments which the company has previously downplayed. In addition, PPH competitors Tithely and Givelify have seen net customer increases of up to +6,000 and +18,000 churches respectively over the past six month period, in comparison to PPH's net additions of medium/large churches by +13 and small churches by +296 on its donor management platform. Given clear competitor outperformance in this key growth segment, PPH's ability to meet our previous growth assumptions appears compromised, and we reduce our FY22 sales growth rate from 13% to 10%"
- FB effectively reduced their target to $2.31 - a material ~35% reduction suggesting a slightly over-exuberant initiation of coverage.

- Both Macquarie and UBS sit neutral, with Macquarie downgrading on the 5th of November


Reflecting on the above

- I think the incremental market share gains are going to be more expensive, harder and less profitable. Medium churches are valuable but the CAC and LTV are higher and lower respectively
- I ascribe a higher value to organic growth than acquisition growth. Why? Mainly because acquisitions are expensive... not necessarily due to the price paid, but rather the cost of integration and distraction. The likely focus on acquisition growth is ok, but nerve racking
- Competition is real - according to FB's interviews, "We started using PPH 4–5 years ago. It has been great, but we're switching away as don't need all the capabilities. We're now doing full-on digital and have switched to Simple Donation. We were on a PPH contract on a monthly deal, but they have increased the rate so we went to explore other options as we weren't using all the different functions and didn't need it all"
- Transition of medium churches to large/mega appears challenging - how many medium churches really become mega churches? And even if they do, is it 1-2 a year?
- What is the opportunity outside of the US? I do worry that PPH's global market is really only the US market and with ~10% share, the growth opportunity is limited. Broader question, what's your view on whether PPH has any ability to service other denominations? With Christianity the game is clipping the ticket on donations/tithing. Does PPH have an ability to provide other religions a service they're willing to pay for? Are there other markets worth exploring?
- Digital penetration has been accelerated through Covid - but are we now back to slow and steady digital penetration from here? And is that tempered by the reducing number of church goers?
- Does the frequency and size of the insider sell downs now start to look worrying as opposed to rational?

Addressing the comments in my last post

- Above in red.
- Time to fight the quandary that is, "where do I put the modest gains?" and take my own advice of making some cash gains on selling.
- TL;DR (too long; didn't read) - I'm a seller (risky, but going to give it a week and see if anyone can convince me otherwise)

[Hoop]

Sir Ten..I enjoyed reading your constructed post

[JohnnyTheHorse]

"PPH has requested the trading halt to facilitate a bookbuild for the sale of a significant combined shareholding in PPH by two existing shareholders."

https://www.nzx.com/announcements/365006

Be interesting to see what price it goes through at. I have a feeling it could get pretty punished once market reopens.

[tango]

"PPH has requested the trading halt to facilitate a bookbuild for the sale of a significant combined shareholding in PPH by two existing shareholders."

https://www.nzx.com/announcements/365006

Be interesting to see what price it goes through at. I have a feeling it could get pretty punished once market reopens.

Sigh
I sold a parcel at $9.50 and bought in again at a lower price but if I had my time again I would not have bought back into this company.

Turn the other cheek I guess

[dreamcatcher]

Sigh
I sold a parcel at $9.50 and bought in again at a lower price but if I had my time again I would not have bought back into this company.

Turn the other cheek I guess

Mine are all free held fortunately

and a very good post Sir Ten thanks for sharing