AFR Article featuring CIO Sean Sequeira on Pushpay – Faith player Pushpay the answer to investor prayers

Tom Richardson
The practice of tithing or donating part of one’s income to a religious organisation pre-dates biblical times, but it’s taken the revolutionary power of COVID-19 to send church giving digital.
Key beneficiaries of the shift to digital church donations are investors in Auckland-based dual-listed enterprise software business Pushpay.

Its shares are up 127 per cent in 2020 to a market value of $2.4 billion as physical church congregations in the coronavirus-hit US are replaced by digital gatherings and donations Pushpay connects via its software.

Andrew Mitchell a senior portfolio manager at Ophir Asset Management and early investor says it’s a fast-growing market leader in a digital sweet spot.

“We heard in the coronavirus world that many churches have abandoned the offering plate altogether, as it could be a source of infection. US pastors have moved church to an online experience and heavily promoted giving via online methods.”

Keeping the faith

On June 18 it upgraded guidance for financial 2021’s adjusted operating income to between US$50 million to $US54 million on sales tipped to surge higher.

Sean Sequeria the chief investment officer at Eagle Asset Management says on these numbers the stock still boasts significant upside. This despite it already quadrupling to $8.81 from an October 2016 initial public offer price of $2.09.

“People do what their church tell them to do. The growth rates are really, really strong. Last year they did $US130 million in revenue, but the total market size could be up to $2 billion,” says Sequeria.

The fundie argues Pushpay is still cheap versus many of its software-as-a-service (SaaS) peers on common valuation metrics such as price-to-forward sales and EBITDA, or the lifetime value of all subscribers as a percentage of market cap.

Goldman Sachs forecasts FX-adjusted EBITDA of $80.6 million on FX-adjusted revenue of $255 million in financial 2021 for Pushpay. That puts it on around 30 times FX-adjusted forward EBITDA and 9.4 times FX-adjusted forward sales.

By comparison other popular ASX-listed SaaS businesses like Xero and Wisetech trade on far higher comparable multiples, while e-commerce player Afterpay sells for 36 times Goldman’s estimate of financial 2020’s revenue.

“What we see with other SaaS businesses is they increase their marketing spend in line with, or more than, revenue to maintain market share. But with Pushpay the marketing spend doesn’t go up so much as they market to churches,” says Sequeria.

In effect Pushpay is an already profitable SaaS business, growing strongly, with a gross margin that climbed from 60 to 65 per cent over financial 2020.

In addition once a church is signed up it distributes the app and services to all its parishioners on behalf of Pushpay, which improves the unit economics of the business.

“We have spoken to many churches who use Pushpay and overwhelmingly they love the product and openly recommend it to other churches,” says Mr. Mitchell.

“It offers investors high-quality growth. It’ll take market share as the leading provider of payments giving. At the same time their existing customers grow as congregations choose to move more of their giving from the offering plate to online.”

Significant risks still exist around the business, with recieving fees from Christian churches in the US an unorthodox business model. The churches may embrace competition or in-house products over time.

For now Sequeria says the competition is limited due to the niche space Pushpay operates in, with the evangelical fervour of its user base actually making the business more recession-proof than a charity for example.

“Charities is a different concept. A different psyche. They don’t have the pull over people like churches do. What Pushpay found is the churches took it up more during the virus to stay in contact with parishioners.

“The software actually helps lifts donations, which is why over 10,800 churches in the US have have embraced them,” says Sequeria.

For now Pushpay’s accelerated adoption is delivering huge returns for the avowed believers, but investors’ faith in the business will face tests ahead.




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