PPH - PushPay (Church/donor software.)

[Hoop]

A log chart....
Snow Leopard is probably correct (this time..The wide range of share price justifies the use of Log scale over that of Linear...Usually when the price is less volatile it doesn't matter which one you use as the price breaks are similar..The big effect is usually the trend line which I don't overly rely on..but each to their own..
What does matter is how many investors in the market use log scale..If there is an overwhelming number of investors using log charts and they are all trendies then a log scale has to be the preferred chart method.
Also investment styles ...many investors call themselves long term investors although that's debatable during exuberance/fear times, but often the tax structure forces investors to buy & hold rather than trade..
Charting covers all term investors short medium and long..The PPH sell signal for a long term investor is currently at $5.55, a long way off..(see first chart)
Again if you are an investor willing to hold for a considerable time, then patience during the correctional decline is either a virtue or a poison arrow..PPH is a very high growth rate yet the share price languished for a considerable time between Mr Markets' correction rallies (see the second chart).

Also..many investors have different sell strategies..A popular sell strategy is exit when the second support is broken, as you see on the first chart the second broken support (now resistance) occurred recently at $7.90 -$8.00 area...You know this strategy is popular when it is noticeable using the trade depth function..Sometimes certain stocks have different types of investor trading so looking at the trading depth gives you a good idea of what type of investors are buying/selling

Attachment 11797

PPH 22072020A.jpg

[JSwan]

https://www.nzx.com/announcements/357088

CFO selling down to fund his new Ferrari?

[Mel]

I have been contemplating purchasing PPH (again as I sold out too early); I believe there is significant upside (not just in a COVID environment) but I have nagging doubts when some of the insiders are selling at the current prices. Shane (CFO) may have had a legitimate reason to sell but it does raise a few questions!

[Hoop]

I have been contemplating purchasing PPH (again as I sold out too early); I believe there is significant upside (not just in a COVID environment) but I have nagging doubts when some of the insiders are selling at the current prices. Shane (CFO) may have had a legitimate reason to sell but it does raise a few questions!

When it comes to investing, waiting can be the right action...

Mel.. yes nagging doubts and you are not alone as this emotion is reflecting on the PPH chart..After a sharp fall the share price, the last 8 days has seen a shallow up sloping rectangle pattern with small price movements..A Chartist call this a tight bearish flag event...Flags are considered continuation events. Continuation of the trend doesn't always happen but the odds are moderately in the favour the flag will breakout and continue in the same direction trend as before the flag event, which in PPH's bearish flag is downwards..
All you need though is a sudden change of investor sentiment to force a breakout against the odds and this does happen, so from a TA charting point of view, it pays to wait (patience is a virtue) for the share price to break out of its tight flag event, the breakout upwards will signal a buy...

Why do I call it a flag event rather than a flag pattern when others call it a pattern?.....Events are short term structures and patterns are longer term structures.....If a flag lasted a long time is would not a flag it would a sloping rectangle pattern..remember a flag event includes the flag pole

PPH exhibiting a bearish flag for the last 8 days suggests we don't have to wait much longer for a breakout to occur......Which direction will it be..eh?

Disc: recently sold out

[Mel]

Appreciate the comprehensive explanations Hoop. The analytics are so useful in terms of timing a buy/sell; I am inclined to overlay it with the fundamentals of this company in that their SaaS offering is very functional, scalable, (with limited customisation) and significant opportunities for increasing market share, amongst other positive attributes. Also, very impressed with their gross margin of ~65% (excl. Community Church Builder) which is set to improve further.

[Hoop]

Appreciate the comprehensive explanations Hoop. The analytics are so useful in terms of timing a buy/sell; I am inclined to overlay it with the fundamentals of this company in that their SaaS offering is very functional, scalable, (with limited customisation) and significant opportunities for increasing market share, amongst other positive attributes. Also, very impressed with their gross margin of ~65% (excl. Community Church Builder) which is set to improve further.

.
Yes many investors use FA to find a good company and then apply TA to time their buys...PPH based on past and present performance looks to have a stella long term future

[Cadalac123]

Appreciate the comprehensive explanations Hoop. The analytics are so useful in terms of timing a buy/sell; I am inclined to overlay it with the fundamentals of this company in that their SaaS offering is very functional, scalable, (with limited customisation) and significant opportunities for increasing market share, amongst other positive attributes. Also, very impressed with their gross margin of ~65% (excl. Community Church Builder) which is set to improve further.

Fundamentally this is really strong. CFO could have sold for a number of reasons. Apparently “all the insiders are selling” as per Ogg. I can count the number on my hand but okay

[Nigelk]

Serious question, are there any insiders who haven't sold yet?

Yeah he sold circa 18% of his holding, so what..
The value of shares he's holding now is still much higher than what he had 3 months ago.
He's been just earning a salary and now wants some extra cash to splash out on a few luxuries and/or diversify his portfolio.

Same with the Hulich's and me too.
My holding cost is a 6-figure negative, doesn't mean i'm not happily still holding lots of PPH and bullish about its future, I just took some risk off the table and diversified my holdings a bit.

[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.
• 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)
• 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)

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
• 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?
• 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
• 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
• 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
• 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
• 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.
• 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.
• 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?
• 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.

Where I stand:
- Insider sell-downs all seem reasonable and rational
- 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
- PPH investor relations are exceptional
- 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
- 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.

[Cadalac123]

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.
• 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)
• 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)

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
• 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?
• 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
• 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
• 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
• 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
• 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.
• 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.
• 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?
• 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.

Where I stand:
- Insider sell-downs all seem reasonable and rational
- 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
- PPH investor relations are exceptional
- 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
- 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.

While I agree with all your points, the current re-rate x2 was driven by the upgraded guidance which was well welcomed. It's easy to dwelve deep into the macro-economics and forget to view the blindingly obvious balance sheet inflection point PPH has just gone into.

It's difficult ascertaining how significant tithly and other competitors pose a risk to PPH. What I will say is despite the ongoing presence of these competitors PPH has continued to grow exponentially. I do expect revenue growth to be somewhat decent till Fy22 or so given the "inorganic" growth they've probably achieved through the CCB acquisition. Regardless, I don't see this financial year being bad for them at all but rather more on the upside.

As you said you're a long-term holder so the outlook 2+ years is def unpredictable, however the improving operating leverage has poised this as a "safe stock". Customers are sticky and network effect is there and has clearly been capitalized on. The cost to cancel services feature also grabs churches for a period of commitment so we have some strong switching costs too, especially in the COVID environment.