Is Pushpay Holdings Ltd (ASX: PPH) a millionaire maker share? It has already been a solid grower since it listed on the ASX a few years ago.
Indeed, since the market crash caused by the coronavirus pandemic, the Pushpay share price has rocketed 163% from that low.
Pushpay is a software business that facilitates electronic donations. It provides tools and a community app for its clients. It's particularly focused on the large and medium US church sector – there is large amount of money donated each year in this area.
What was driving Pushpay before COVID-19?
The company was steadily winning over churches before the pandemic. It's always a good idea for organisations to make it as easy as possible for people to donate (or pay). Electronic donations are rising in popularity, just like electric payments in general are.
You can see this growth from the increase of total processing volume by 39% to US$5 billion in FY20.
The company also recently acquired Church Community Builder for US$87.5 million that helps churches connect with their community members, record member service history, track online giving and perform a range of administrative functions. In April 2020 Pushpay and Church Community Builder launched a joint product. They can sell to each of the client bases, plus the combined offering will be more compelling for potential new clients.
Pushpay's business model is attractive because of the growing operating leverage of the business. In FY20, the company's revenue (excluding Church Community Builder) rose by 28% to US$123.1 million. The gross margin improved by five percentage points from 60% to 65%, excluding the acquisition it improved to 64%.
One of the main pleasing things is that the combined business is expecting further gross margin improvement.
Total operating expenses only increased by 5%. Excluding the acquisition, operating expenses actually decreased by 8%.
It was the above factors that caused earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to rise by US$23.5 million to US$25.1 million. It also helps that it's now generating solid operating cashflow.
Why it could be a millionaire maker share
I think Pushpay could be a great share to own because the current pandemic is causing many more people to donate electronically than they otherwise would have, bringing forward the shift to electronic giving.
Management expect the company to achieve EBITDAF of between US$48 million to US$52 million, which would be approximately doubling the operating profit. That would be a very strong result.
Over the long-term, the business is targeting market share of over 50% of the medium and large church segments, which would be an opportunity of over US$1 billion of revenue. Obviously this would come with higher profit margins.
The US church segment is only one opportunity. There are plenty of other not-for-profit areas for Pushpay to grow over the long-term. I'd very happily buy shares for the long-term today.
