PPH - PushPay (Church/donor software.)

[tango]

I think generally speaking Kiwi analysts are bullish about software companies after the Xero experience (which analysts completely underestimated) and err on the side of optimism these days.

Having said that, the Pushpay app and Church Community Builder have a lot of promise.

I see your point about millennials. Millennials are typically less engaged with churches and religion but perhaps the online community will bring them back into the fold. There is plenty of scope with the current population but longer term younger people are less likely to belong to a church so it could be an issue in 10+ years

[gbogo]

thank you for sharing the FB view and your analysis. I saw a Clare Capital slide this week that a) put PPH right up there with Slack and Twillo and way ahead of Xero for time-to-$100m-ARR and b) shows that Atlassian, Xero and others have similar Last 12 Month’s Revenue but 2-4x Enterprise Value. Based on that, seems like there is still significant upside.

[Sir Ten]

thank you for sharing the FB view and your analysis. I saw a Clare Capital slide this week that a) put PPH right up there with Slack and Twillo and way ahead of Xero for time-to-$100m-ARR and b) shows that Atlassian, Xero and others have similar Last 12 Month’s Revenue but 2-4x Enterprise Value. Based on that, seems like there is still significant upside.

I saw the same chart and agree, PPH presented well in terms of its timeline to reach $100m ARR. The part I'm grappling with is how it gets to $300m ARR+ relative to the others in that slide...?

[sb9]

Not there yet, but surely heading towards $9 mark..

[Cadalac123]

Not there yet, but surely heading towards $9 mark..

Break above 50 MA now and has settled above for now so TA not looking bad

Need fundamental confirmation with the November report to back another leg up imo

[Getty]

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.

I admire posters who put the effort into compiling lengthy, reasoned and factual posts along with their opinion, and face the scrutiny that follows.

Bearing in mind Covid restrictions MAY be around for years, , I pose a question for investors to consider.
How long will Covid inspired giving to churches continue?
Will there be a point when people ask," who am I giving to?
I don't see them anymore"
A bit like buying a ticket to a show you know you won't be able to attend, or buying food you know you won't eat.

Then again, who knows what folks will pay for a bit of redemption?
Who can remember Dr Oral Roberts?
His impassioned pleas over the radio, for money to build his prayer tower, so his prayers would be closer to God.
Maybe he was ahead of his time, like an ultra high frequency share trader, wanting to be close to the stock exchange, to get his orders in first!.
And his 6 mpg Cadalacs, mmm, I wonder what better causes the money could have gone to?
Look him up on Wikipedia if you wish.

Maybe I've answered my own question...

Dr JPG

Free contraception.
Practise abstinence.

[Cadalac123]

I admire posters who put the effort into compiling lengthy, reasoned and factual posts along with their opinion, and face the scrutiny that follows.

Bearing in mind Covid restrictions MAY be around for years, , I pose a question for investors to consider.
How long will Covid inspired giving to churches continue?
Will there be a point when people ask," who am I giving to?
I don't see them anymore"
A bit like buying a ticket to a show you know you won't be able to attend, or buying food you know you won't eat.

Then again, who knows what folks will pay for a bit of redemption?
Who can remember Dr Oral Roberts?
His impassioned pleas over the radio, for money to build his prayer tower, so his prayers would be closer to God.
Maybe he was ahead of his time, like an ultra high frequency share trader, wanting to be close to the stock exchange, to get his orders in first!.
And his 6 mpg Cadalacs, mmm, I wonder what better causes the money could have gone to?
Look him up on Wikipedia if you wish.

Maybe I've answered my own question...

Dr JPG

Free contraception.
Practise abstinence.

While I agree these points are important to consider, from a business return perspective they are trivial in the short term, but macro wise maybe important.
I mean one could argue that the large base they've build now may run off the fact that these are already established communities who are using PPH and the tailwind will suffice to stabilise the business for the next 3-4 years. Who knows.

I think being objective and seeing actual financial data change and forecasts being met with corresponding TA is more reliable than subjective thoughts about a sector with no objective evidence of such thoughts. You'll end up spending hours making decisions that may end up being null.

[tango]

I believe some of the expected growth is meant to come from non-church customers and from the community software that they have purchased (Church Community Builder).

[tango]

To add to the available research...

Shareclarity
Share price NZD 8.63
DCF value NZD 6.66
Value-gap -22.8%

Craigs Investment Partners research at 14/07/20
Target price $8.88 (range low $4.74 - high $12.42)

"PPH is a payments technology company operating primarily in the US faith sector. PPH’s
suite of products facilitate the digital payment of donations, manage various church
systems & processes and provide an avenue for engagement between churches and
churchgoers. The faith sector has relatively low digital payments penetration with 15% of
payments made digitally.

PPH has an attractive SaaS business model that is highly scalable, has large network
opportunities and operates in a sector with a long runway for growth. Digital payments
penetration remains low in the faith sector and PPH has the ability to expand revenue strongly
by working with existing large customers to increase engagement and grow digital giving. PPH
has also turned some of its attention from pure revenue growth alone, to a more rounded focus
with profitability now gaining some consideration. As a smaller, high growth company, PPH
carries a higher risk profile than many other companies and investors should be aware of this."

Recommendations
Buy 4
Hold 2
Sell 1
Total 7

[Cadalac123]

Didn't they lose their only female director. Someone said the stock would crash after that. Interesting.