Examining Pushpay as a small cap holding
What is Pushpay?
It is a New Zealand based donation systems and software business for religious, not-for-profits and education providers in the US, Canada, Australia and New Zealand. Pushpay is used by over 7000 churches worldwide. The average gift is $192. Pushpay makes money by charging a subscription fee for its app but also from clipping the ticket on processing donations.
Here’s what Pushpay reported in FY20
Pushpay reported that its operating revenue increased by 33% to US$127.5 million. Total revenue rose by 32% to US$129.8 million. Excluding the Church Community Builder acquisition, operating revenue rose by 28% to US$123.1 million. The company said it expects further revenue growth.
Total processing volume rose by 39% to $5 billion.
Improving the gross profit margin is important for a business to generate more efficient profit as it gets bigger.
Pushpay’s gross margin increased to 65% from 60% last year. Without Church Community Builder it would have been 64%.
Whilst revenue grew by 33%, expenses only grew by 5%. That meant that total expenses were only 52% of operating revenue, down from 65%. Expense growth is expected to remain low.
The company’s initial FY20 guidance for earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) for FY20 was US$17.5 million to US$19.5 million. Excluding Church Community Builder, the last guidance was US$25 million to US$27 million, the company achieved EBITDAF of US$27.8 million on this basis – a growth of 1,677%.
Including Church Community Builder (and costs), EBITDAF rose by 1,506% to US$25.1 million.
Reported net profit decreased by 15% to US$16 million. But last year included a one-off benefit from previously unrecognised tax losses and deferred R&D expenditure of US$20.9 million which contributed to the net profit of US$18.8 million.
Operating cash flow was also impressive, growing by 953% to US$23.5 million.
Is the Pushpay share price a buy?
COVID-19 is causing a large increase in demand for Pushpay’s digital technology with live streaming particularly important to connect clients (US churches) with their communities. Digital giving was higher in March than previously expected.
The company is expected further strong revenue growth this year. In FY21 it’s aiming for EBITDAF of between US$48 million to US$52 million. That would be a growth of 91% to 107%.
Over the long term, the company is targeting over 50% of the medium and large church segments, which could be worth over US$1 billion in annual revenue. It’s also considering more future acquisitions.
The Pushpay share price looks as though it’s going to jump at the open. So it’s not as cheap as it was last week, but it could still be a great long term buy today.
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