The Pushpay Holdings Ltd (ASX: PPH) share price looks like a really good option in my opinion.
It just announced its FY21 result that showed a large increase of growth over the prior 12 months.
But there had been plenty of investor concern about what the future looked like as the US adapts to a new COVID-19 normal.
There are a number of reasons why I’m more confident on the Pushpay share price:
Digital giving continues
One of the key things that gives me confidence about Pushpay is that it hadn’t seen a reversal of the trend of digital donations.
In Pushpay’s own words, it said:
“As churches begin to gradually re-open with restrictions, it has become evident across the sector that the market has undergone a transformative shift, whereby digital solutions play a crucial role in the future of the church. Pushpay has not seen a meaningful proportion of digital giving revert to non-digital means, indicating that its customers in the US faith sector may have undergone a fundamental technological shift as a result of the current environment.”
I think this is a very positive development because some investors were voicing concerns that some donations would go back to cash.
As the US economy recovers, that should boost the overall donation pool across the churches, so hopefully Pushpay can continue to grow.
In FY21, Pushpay saw processing volume growth of 39% to US$6.9 billion. The company is expecting continued growth in processing volume as its customer numbers grow, its products are developed further and its customer base changes to digital giving.
Ongoing operating leverage
Some investors may also have been worried that the operating leverage that Pushpay had been accruing would not continue – particularly if volume growth slowed.
But not only did Pushpay’s EBITDAF margin (EBITDA explained, the F stands for foreign currency) improve year on year to 34% – up from 22% – but it was a sizeable increase from the HY21 result where the EBITDAF margin was 31%.
Continuing growth expectations
Pushpay is investing several million dollars to grow in the Catholic segment of the faith sector. There are thousands of smaller churches that Pushpay can win as clients.
Not only is Pushpay investing for growth, but it’s still expecting underlying operating profit to keep rising.
The company is expecting EBITDAFI (EBITDAF and impairments) to be in a range of between US$64 million to US$69 million. Excluding the Catholic investment, EBITDAFI guidance is US$66 million to US$71 million.
Summary thoughts on the Pushpay share price
There was a positive but somewhat subdued reaction to the Pushpay result.
Over the next 12 months, Pushpay is expecting to generate more profit than the huge FY21 year that detractors thought could be a one-off windfall year.
Using the Commsec earnings estimate for FY22 of earnings per share (EPS) of 5.6 cents, that puts Pushpay on 28 times the 2022 financial year forecast earnings. I think that’s a really good price compared to some other ASX growth shares.
