There are a quite a few compelling reasons why the Pushpay Holdings Ltd (ASX: PPH) share price could be worth thinking about right now.
What is Pushpay?
Pushpay is an ASX tech share. The software business has a donor management system, which includes donor tools, finance tools and a customer community app and a church management system to the 'faith sector', non-profit organisations and education providers located mostly in the US.
The aim of Pushpay's offerings is to make it easier for engagement, payments and administration. Pushpay says that its customers can increase participation and build stronger relationships with communities.
Pushpay also has a subsidiary called Church Community Builder which provides a software as a service (SaaS) church management system, predominately in the US. It can do things like record members service history, track online giving and performance a range of administrative functions.
What are some reasons why the Pushpay share price could be a buy?
1: Gaining market share at a quick pace
A business that is growing quickly may be able to generate good investment returns as well, particularly if the valuation doesn't overshoot the growth rates the company is generating.
In the FY21 half-year result Pushpay reported that its operating revenue grew by 53% to US$85.6 million. Total processing volume increased by 48% to US$3.2 billion.
Pushpay expects continued growth in total processing volume driven by a larger proportion of new medium and large customers, further product development leading to higher adoption and usage, and increased adoption of digital giving.
2: Operating leverage
Pushpay is generating increased operating leverage as it gets bigger. In the FY21 half-year result, its gross profit margin went up from 65% to 68%.
For the six month period to 30 September 2020, expenses only grew 16%. As a percentage of operating revenue, total operating expenses improved by 12 percentage points, from 50% to 38%.
Pushpay said that it expects significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.
In the half-year result, Pushpay increased its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) by 177% to US$26.7 million.
Pushpay recently increased its FY21 EBITDAF guidance to a range of between US$56 million to US$60 million and said it expects operating leverage to continue to accrue to the business over the remainder of FY21.
3: Pushpay share price valuation
The Pushpay share price has fallen by around 25% since 28 October 2020, despite Pushpay increasing its EBITDAF guidance materially since then.
Earnings estimated on Commsec suggest strong profit growth between now and FY23. At the current Pushpay share price, it is valued at 22x FY23's estimated earnings.
In the FY21 half-year result it grew its net profit after tax (NPAT) by 107% to US$13.4 million, whilst operating cash flow went up by 203% to US$27 million.
4: Long-term growth plans
Pushpay has set its sights on other areas of growth.
One area that it's looking at is the Catholic segment of the US faith sector.
Pushpay is looking at different geographies where it can expand including South East Asia and South America, which could lead to a bigger total addressable market and give it more earnings diversification.
Adjacent donation areas could also become larger parts of the business including not-for-profits, education and tertiary.
