There are a few different reasons why the Pushpay Holdings Ltd (ASX: PPH) share price could be attractive to investors at the moment.
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What is Pushpay?
Pushpay describes itself as a donor management system, including donor tools, finance tools, a customer community app and a church management system to the faith sector, non-profit organisations and education providers located predominately in the US.
It also acquired and owns Church Community Builder, which is a software as a service (SaaS) church management platform system that churches use to connect and communicate with their community members, record member service history, track online giving and perform a range of administrative functions.
Pushpay also offers a combined system called ChurchStaq where churches can used both systems in a joint offering.
The company just announced that its chief customer officer, Molly Matthews, will become the new CEO from 1 March 2021. She joined the Pushpay business over four years ago. Pushpay said that Ms Matthews has excellent leadership, strategic thinking, problem solving, cultural development and advocated for Pushpay's customers in decision making. The company's leadership said she has a deep understanding of Pushpay's customers.
Why the Pushpay share price could be interesting
Fund manager Ben Griffiths from Eley Griffiths said: "Over the last 12 months it has become clear Pushpay is at an inflection point for both cashflow and earnings. Under the stewardship of CEO Bruce Gordon, Pushpay has transitioned from a founder-led investment phase into an optimize/monetization phase. What is more surprising is the very conservative nature of the accounts (a rarity in small cap tech, outside Iress Ltd (ASX: IRE)). We believe the next few years for Pushpay will be rewarding and that COVID-19 will accelerate the already entrenched trend to digital giving/engagement from cash."
Here are three reasons to consider Pushpay:
Continued profit growth
Pushpay just announced that it was increasing its profit guidance again. The key donation month of December 2020 was better than expected, which meant that the company decided to raise its expectations.
When Pushpay released its FY21 result in May 2020, it was guiding that earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDA) could be in a range of US$48 million to US$52 million.
At its AGM in June 2020 it increased that EBITDAF guidance to a range of US$50 million to US$54 million.
When it released its FY21 half-year result it increased the EBITDAF expectations again to a range of US$54 million to US$58 million.
This week the company increased the guidance yet again to a range of US$56 million to US$60 million.
Operating leverage
Operating leverage is when a company is able to grow its profit even faster than revenue because of economies of scale.
In the recent FY21 half-year result, Pushpay reported that its operating revenue increased by 53% to US$85.6 million. However, in that same result the total operating expenses only grew by 16%. EBITDAF surged by 177% to US$26.7 million. Net profit grew 107% and operating cashflow went up 203%.
The gross profit margin improved by another three percentage points from 65% to 68% and the EBITDAF margin jumped from 17% to 31%.
If profit margins increase, it means that profit will increase at a faster pace than the revenue growth.
Pushpay said it expects significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.
Valuation
Looking out to FY23, the Pushpay share price is not priced as highly as other ASX growth shares.
According to Commsec, the Pushpay share price is valued at 23x FY23's estimated earnings. Looking at other valuations, the Pro Medicus Ltd (ASX: PME) share price is valued at 73x FY23's estimated earnings, the REA Group Limited (ASX: REA) share price is valued at 40x FY23's estimated earnings, the ResMed Inc (ASX: RMD) share price is valued at 31x FY23's estimated earnings and the SEEK Limited (ASX: SEK) share price is valued at 43x FY23's estimated earnings.
