Our view: PPH upgraded FY21 EBITDAF again and announced a share split to improve liquidity. The upgraded guidance was driven by cost control and operating leverage. Delivered strong 1H GP margin growth, tempered by no customer growth in the last 6 months on higher churn in CCB. The Huljich directors are departing in Dec-20 leaving a perceived share overhang with ~16% of total shares outstanding now off escrow. We've revised FY21/22 EBITDAF +5%/-7%, the latter on slowing top line growth assumptions. New price target $9.15 vs $10.00 prior and downgrade to Sector Perform. More questions than answers.
But What's Going on with the Front Book? Our main concern is whether PPH as a growth stock is looking like it is turning ex-growth. Customer numbers were flat on Mar-20 at ~11k, curious given the strong demand tailwinds management pointed to during Apr-May. Part of this can be explained by increased churn in the acquired CCB business from customer decisions pre-COVID. However the soft guidance for ~200 new customers in 2H21 implies ~1% sequential growth and raises questions on front book momentum. Management points to product cross sell as driving growth within the existing customer base but this alone may not be sufficient to achieve 10-15% organic revenue growth in the near/medium term. Potential upside could come from expansion into the Catholic church sector and/or M&A but timing is uncertain and not without risk.
PPH Price at posting:
$7.63 Sentiment: Hold Disclosure: Not Held
