There are several reasons why Pushpay Holdings Ltd (ASX: PPH) shares are worth considering.
What does Pushpay do?
Pushpay is a business that facilitates electronic donations to charitable organisations. Its main client base is large and medium US churches.
The business has an application where the church can stay in touch with its congregation. One of the most useful options is a livestreaming service. This is a very helpful feature in this era of COVID-19 and social distancing.
It recently acquired the Church Community Builder (CBB) business. Pushpay is now offering the combined service of both the original technology and CBB in an offering called ChurchStaq. Pushpay said that ChurchStaq is resonating with its current client base and it outperformed internal expectations. Management think this reinforced the hypothesis that the majority of customers prefer an integrated end to end solution.
It's one of the ASX shares that is trying to tap into the trend of cash payments going digital. It was achieving this even before COVID-19 came along.
Here are three reasons to consider Pushpay shares:
Rising profit margins
Pushpay is demonstrating its economies of scale with each of its results.
In the latest report, which was the for the FY21 half-year result, it revealed that the gross profit margin increased from 65% to 68%.
It also reported that its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin went up from 17% to 31%.
As Pushpay grows its processing volume and revenue, more of the revenue will fall to the next level of profit. In the FY21 half-year result it grew its net profit after tax (NPAT) by 107% to US$13.4 million.
Big goals
Pushpay wants to become the leader of the US faith sector. It wants to reach a 50% market share of large and medium US churches. Pushpay is aiming for US$1 billion of revenue when it reaches that market share target.
The company recently said that it expects "significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low."
In FY21 alone it's expecting to more than double its EBITDAF to between US$54 million to US$58 million. This guidance for FY21 has been increased more than once already. The most recent guidance was for EBITDAF to be between US$50 million to US$54 million.
Optionality
At the moment the focus for Pushpay is on growing its position in the large and medium US church sector. It can continue to expand its software offering for its existing market by creating more efficiency advances for users and offering more services.
However, the company already states that it also serves non-profit organisations and education providers in the US and other jurisdictions. It has a lot of room to expand in these areas.
Pushpay can do a number of things to increase its total addressable market. It can target smaller churches. Pushpay could look to expand into other religions in the US. The company could even grow in other countries.
The valuation
The Pushpay share price has risen by 84% since the start of the year, factoring in the share split. And it's actually up by 171% since the bottom of the COVID-19 crash.
At the current Pushpay share price it's valued at 25x FY23's estimated earnings using Commsec's estimate numbers. This valuation is lower when compared to the FY23's Commsec earnings estimate for Altium Limited (ASX: ALU) which is at 44x the projected earnings.
