Certainly a disappointing set of results, but you do need to put this in a slightly broader context if you understand the business:
- they have been growing at ~16% CAGR each 6 months since 1H2018 (Apr20)
- they traditionally have a slow 1H (relative to the previous 2H) given 2H includes the Dec/xmas period...case in point being 1H19 growth was ~10%, 1H20 growth ~5%, 1H21 growth ~20% and 1H22 growth 0% (all vs previous half).......1H22 was poor, but if you look at 1H21 it shows that a lot of growth was brought forward by covid. With people returning in person to churches, there has been a reduction in Annual processing volumes (down ~200m), but perhaps expectations too high as FY2021 had a 40% increase in this number (6.9bn up from 5bn)
- I'm not sure why they were reluctant to highlight, but customers for both donor mgmt & church mgmt grew by ~250 each (perhaps cross selling, perhaps resi), but it does not matter because ultimately you can see that subscription revenues continue to grow quite well.....as this becomes a bigger share of revenues, it will also increase the overall margins given its much more profitable than processing revenues (margin of ~59%)
So at ~$1.45 it is trading at a PE of ~30 on the guidance they have provided (underlying EBIDAFI of ~60m) which IMO is not outrageous for a quality company with these sort of economics.
Negatives
- perhaps processing volumes will plateau for a little longer given covid accelerated online giving (although they indicated that 2Q was stronger, so you'd still expect a decent Dec quarter)
- growth is slowing given they have a decent share of the mega churches and the rapid growth we have seen in the past is not going to be repeated (and the catholic sector from what I can see is not going to be as easy to continue rapid growth given the parishs are much smaller than the big churces)
- catholic sector IMO is good, but will be a slow burn for another 12-18 mths before we start seeing results
Positives
- guidance IMO seems very conservative (the Dec half historically has been very strong)
- resi was expensive, but it looks like they bought resi for their client list and if they can integrate donor mgmt & church mgmt with streaming then it seems like a pretty comprehensive offering at least from a church goers perpective
- their churn is very low, so even if they just stand still, it's ~60m underlying PBT and ~50m in PAT for a business that has thousands of clients who IMO would be reluctant to change and create a lot of pain for themselves and parishioners unless pushpay offering & service is really bad (and that is not what I see based on the people presenting at investor day)
Obviously I would have liked to see this north of $1.80, but I'll wait to see another set of data points in April/May next year and hope that what they are saying about the US consumer is true (highly cashed up and ready to spend)
