I think there are a number of good reasons why the Pushpay Holdings Ltd (ASX: PPH) share price looks like it could be a good buy.
What does Pushpay do?
As Pushpay says, it provides a donor management system, including donor tools, finance tools and a custom community app, and a church management system to the faith sector. Subsidiary Church Community Builder provides a software as a service (SaaS) church management system predominately in the US which provides a platform 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.
I really like Pushpay for three reasons.
Expanding operating leverage
Pushpay increased operating revenue over FY21 by 40%, total operating expenses increased by 9%. As a percentage of operating revenue, total operating expenses improved by 11 percentage points, from 47% to 36%.
Operating leverage was largely driven by strong operating revenue growth, further margin improvements and disciplined cost management. Pushpay itself said it expects significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.
The company says it adopted best-in-class software tools and scalable processes early in its development. Pushpay believes these investments will allow significant operating leverage to be achieved as revenue grows.
Pushpay continues to see rising margins. The EBITDAF margin (EBITDA explained, the F stands for foreign currency) improved from 31% to 34% between September 2020 to March 2021.
Great cashflow
Pushpay has an impressive cashflow record. It is able to generate high levels of operating cashflow whilst see good levels of growth.
In FY21, operating cashflow increased 145% to US$57.6 million. This cashflow enabled Pushpay to fully repay its bank debt, which was taken on to buy Church Community Builder.
Management believe this cashflow provides flexibility as it continues to find further potential strategic acquisitions that could broaden its current proposition and add significant value to the current business offering.
New investing
Pushpay is planning to grow into the Catholic segment. FY22 is going to a key period of initial investment as Pushpay’s team focuses on establishing relationships and increasing engagement with key stakeholders.
In FY22, Pushpay’s investment into the Catholic segment is expected to be within the range of US$6 million to US$8 million. Pushpay expects to increase product design and development headcount over FY22, as it continues to further develop the functionality of suite of solutions to serve the Catholic segment.
Pushpay expects to realise the benefit over the course of the following financial years.
Summary thoughts on Pushpay and the share price
Pushpay is expecting to grow its underlying operating profit again in FY22 and it seems to be on the hunt for another acquisition.
I think Pushpay looks good value at 31 times the 2022 estimated earnings, according to CommSec.
