Morning All
Given the news on Sixth Street becoming a new 'cornerstone' investor, thought it may be helpful to share an extract of something I posted on *** about 3 weeks ago. We have all come through an extended period which can only be described as extemely frustrating. Relentless churn and an obvious disconnect between the progress detailed in Company Reports and the prevailing shareprice. We all see things differently but herewith my take leading up to FY results and beyond.
"With a mere 4 weeks to PushPay's Full Year Financial close and a further 6 weeks to the release of the Results, worth reflecting on the many 'comparable' Company results just released during the Australian Reporting Season and then draw some comparisons versus what we are likely to see from PushPay.
An obvious distinction for the many Companies who have just provided their HY results is those that have benefitted from Covid-19 versus those that have seen a fall in Revenues and profitability. PushPay have clearly benefitted with the move to Digital, this already evident in May 2020 when they provided the market guidance on EBITDAf, this at a time when many others were withdrawing guidance. PushPay have subsequently increased the guidance on EBITDAf on no less than three occasions. Some may have considered strange that Guidance was provided on a Result, but no guidance provided on the primary drivers of the result, these being TPV and Revenue.
It is the well established ratios, trajectories and subsequent Company narrative that now allows us the opportunity to write the script for the 11 May release. Here is a look at likely headlines.
Operating Revenue.......USD 190 m .... 49 % growth versus FY2020
3rd Party Costs.............USD 60.6 m .....35.3% increase in Cost vs FY2020
Gross Profit ...................USD 129.4 m ......56.5% increase vs FY2020
Operating Expenses ......USD 68.7 m ........a modest 4.6% increase in Spend vs FY2020
EBITDAf ..........................USD 60.7 m ........118.3% increase vs FY2020
Comments in support :
* Working back from the EBITDAf number, applying the well documented ratios,the Operating Revenue becomes a calculated result. Ties with the historical fact that H2 Revenue is approx. 22 % higher than H1
* Gross Margin set at 68% as reported at the HY. Accompanied by narrative .. " whilst typically weaker over the 2nd half, expect gross margin to stabilise at current levels over the remainder of the current FY"
* Operating Leverage : ..." Opex as a percentage of Oper. Revenue improved from 50% to 38%. PushPay expect significant operational leverage to accrue as Revenue increases and Opex remains low.
The above should constitute a 'WOW' result on stand-alone basis and then particularly when compared to those reports received through reporting season.
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Why is the share price labouring ? Some comments ...
* Customer count not growing ! ......" The Company's primary focus is on increasing Revenue by attracting a larger number of medium and large Customers AND cross selling products to existing customers, whilst expanding ARPC and increasing retention" ENTER
- 2716 new customers via CCB acquisition ( remember PPH have onboarded no more than 500 customers a year nett of small church churn )
- Churchstaq ! In House TAM becomes near on 11000 churches. Subscription Revenue set to increase as a % of Total Revenue? CCB were achieved 90+% Gross Margin
* Relentless Insider Selling !
Firstly, Founders are now out. Yes, the Founder Investors (Huljich Father & Son) have sold shares and still sit on a 15 % holding each. Their resignation from the Board means they are no longer considered under Inside Ownership. Believe this sets the Company up to be included on the ASX 200. They motivated the share split on the basis ...." the BOD believes the share-split is likely to enhance liquidity in the market and attract further shareholders".
Refer the most recent Substantial Holding announcements ...Harbour Asset Mgt and Mawer (x2)....both new to the Register. Trading Volumes over the ASX and NZX have increased significantly and narrow-band trading supports Transfer of Ownership. Register will look vastly different come May.
Confident that the Float Adjusted Market Cap or Free Float as often referred to will no longer present a hurdle. Market Cap not a problem and IMO will re-rate in the coming weeks.
Enough for now. Digital giving here to stay and I never doubt PushPay when it comes to execution. Confident with my valuation at $ 2.65.
Rob W
PS Dont forget to convert above numbers to AUD"
Subsequently received confirmation that the new Mawer 'substantial' holding is in the singular ie not x2.
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The news IRO Sixth Street will certainly impact favourably on the 'Float adjusted Market Cap', a key determinant in any re-balance for ASX 300 or ASX 200.
And finally, whilst the script referred to above could carry an error of say 3% - 5%, the established relationships say that if, for example, the Revenue comes in lower, then either the 3rd party costs of Operational Expenses would need to come in lower, in order to deliver the EBITDAf result.
My read, we are on the cusp of a re-rate entering FY2022. At a personal level, confident we will see an acquisition in FY2022, confident we will see a geographic expansion in FY2022.
Did you know ? About 12 percent of the USA population speak Spanish. PushPay have already developed the capability to offer Web Giving in Spanish. Has the groundwork already been done for entry into the 'Catholic' dominated South American market, where with few exceptions, Spanish is the first language ?
Believe the Guidance for FY2022 will be the key indicator of what we as investors can look forward to going forward. Will it confirm that our compounding machine is alive and well ?
Please accept this in the spirit it is shared. DYOR and as always, keen to hear some alternate views.
Rokewa
