The Pushpay Holdings Ltd (ASX: PPH) share price might be interesting to think about right now.
Pushpay is a leading business in the digital donation space. Specifically, Pushpay provides church management tools and donation tools.
But there are a few reasons why the ASX share could be a good one to keep an eye on:
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Growing profit margins
A business with growing profit margins has the potential to deliver faster profit growth over time.
Pushpay is seeing operating leverage across the business.
FY21 saw the gross profit margin improve from 65% to 68%.
The earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin improved from 22% to 34% thanks to revenue growth and limited expense growth.
Pushpay deliberately chose software that was scalable and it chose the best tools so that it would offer its clients the best service. Management say that when combined with strong financial discipline, these investments will allow significant operating leverage to be achieved as revenue grows.
Strong offering for churches
Pushpay offers a number good tools for its large and medium US churches.
It offers a livestreaming service so that churches can stay connected with their congregations. This has been useful over the last year and a half during the pandemic.
Pushpay's tools also allow churches to track the donations of different givers. It offers many other administrative tools.
The best offering of Pushpay is called ChurchStaq, which is the combined offering of both Pushpay and Church Community Builder (which it acquired not too long ago). It combines Pushpay's giving and engagement solution with Church Community Builder's church management system functionality.
ChurchStaq is proving popular after a sizeable uptake by clients. ChurchStaq sales as a percentage of total sales have increased after its launch in September 2020 across all customer segments. Pushpay has also seen an increase in cross-selling its donor management system and church management system products to existing customers.
The ASX share continues to look for acquisitions that can improve its offering to clients and potentially capture more market share.
Catholic expansion
Pushpay has allocated an initial investment of resources into developing and enhancing the customer proposition for the Catholic segment of the US faith sector.
The Catholic segment of the US faith sector comprises 196 dioceses and archdioceses who represent an estimated 17,000 individual parishes. This will form part of Pushpay's plan to become the preferred provider of mission critical software to the US faith sector.
During FY21, Pushpay has entered into a pilot with the Archdiocese of Chicago in Illinois, US, and welcomed a number of new Catholic parishes and dioceses to the Pushpay platform.
In FY22, Pushpay is going to invest between US$6 million and US$8 million to grow in the Catholic segment. Of this total, two thirds will be for product design and development expenses. The rest is in sales and marketing.
The company expects the benefits of this Catholic segment to be realised incrementally over the course of the following financial years. It has set a goal of acquiring more than 25% of the Catholic church management system and donor management system market over the next five years.
The Catholic church is closely associated with many education providers and non-profit organisations, which presents further opportunities within the US and other international jurisdictions.
Pushpay share price valuation
According to Commsec, the Pushpay share price is valued at 27x FY23's estimated earnings.
