The Pushpay Holdings Ltd (ASX: PPH) share price could be a growth opportunity with high performing fund manager Eley Griffiths investing in the business earlier this year.
An overview Pushpay's operations
Pushpay says that it provides a donor management system, including doner tools, finance tools and a custom community app and a church management system. Its key target market is the large and medium US church sector.
Not too long ago, Pushpay acquired Church Community Builder which provides software as a service (SaaS) church management system, also in the US. Its platform can be used by churches to connect and communicate with their community members, record member service history, track online giving and perform a range of administrative functions.
Pushpay says that the combined offering of Pushpay and Church Community Builder delivers a "best in class, fully integrated church management system, custom community app and giving solution for customers in the US faith sector. The combined offering from Pushpay and Church Community Builder is called ChurchStaq.
In its FY21 half-year result, the company said that sales of its combined offering outperformed internal expectations which reinforces management's hypothesis that the majority of customers prefer an integrated end to end solution.
The Pushpay share price has gone up by 189% since the COVID-19 crash low of 16 March 2020. However, it has fallen 14% since 28 October 2020.
Eley Griffiths' thesis
Fund manager Eley Griffiths took up a position in Pushpay a few months ago.
Manager Ben Griffiths pointed out that the religious donation market is estimated to be around US$100 billion in the US, with Pushpay's current addressable market being around US$50 billion. In FY20 it had a market share of around 10%.
Mr Griffiths stated that over the last 12 months it has become clear that Pushpay is at an inflection point for both cashflow and earnings. It has transitioned into the phase of growth where it's optimising and monetising the business. He thinks the accounts are very conservative in how it reports, which is rare for a small cap.
His bottom line is that the next few years for Pushpay will be rewarding and that COVID-19 will accelerate the ongoing trend of donations changing from cash to digital giving.
FY21 half-year result
Yesterday the Pushpay share price dropped 12.7% after the ASX share announced its FY21 half-year result.
It reported large growth across a range of statistics.
Operating revenue increased by 53% to US$85.6 million. Pushpay said it expects to see continued revenue growth as the business executes on its strategy, achieves increased efficiencies and gains further market share in the US faith sector. The ASX share's total processing volume went up by 48% to US$3.2 billion.
Pushpay's gross profit margin improved by three percentage points, up from 65% to 68%. It expects its gross margin to stabilise at around the current level over the rest of FY21.
It boasted of expanding operating margin in relation to its expenses. Compared to operating revenue growth of 53%, the total operating expenses only went up 16%. As a percentage of operating revenue, total operating expenses improved by 12 percentage points, from 50% to 38%. Management expect "significant" operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.
Its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) jumped by 177% to US$26.7 million. The company increased its EBITDAF guidance again to a range of US$54 million to US$58 million.
Pushpay's net profit more than doubled to US$13.4 million and operating cashflow went up 203% to US$27 million.
Current valuation
Using data from Commsec, Pushpay is expected to generate earnings per share (EPS) of 26 cents in FY23. That translates to 29x FY23's estimated earnings at the current Pushpay share price of $7.63.
