Pushpay 5 years out, page-6

Hi TH

Still very enthusiastic about the PushPay investment case, where the thesis essentially remains unchanged. I have learnt to disregard the price noise and yes, whilst we are seeing announcements such as the partial divestment by Chris Heaslip and a corresponding price trend, it is only natural for investors to ask the question, “ has something changed”. I for one, can fully appreciate a relatively young co-founder opting to diversify his wealth over more than just a single asset / asset class. What’s more it is not uncommon for leaders today to identify and acknowledge that an evolving Company requires leaders with different skill-sets at different stages in the Company evolution. Think of Rod Drury at Xero as a pretty recent example. So, I am at ease on all of this.

Just reading some of the other recent comments, there seems to be view that things are slowing for PushPay. Comments such as ‘soft guidance’, easily replicated offerings, competition, sustainability etc. Here, I view things quite differently. I think their penetration of the US faith sector is and will continue to be measured. As I have said previously, Gross Margin, cash generation and profitability will now share centre stage with Revenue growth and this balanced approach to growing a business should serve us, as shareholders, very well. We have the new signings of medium to large churches, a declining offset of lost ‘small church’ revenue. We have the increased processing volume per church coming through to the business at minimal incremental cost to the business and we are on the cusp of introducing another growth pillar in the business, that being growth by acquisition. Enjoyed Matt’s recent article on the merits of different acquisition routes. Also, was encouraged by the Board’s recent response to the question at the recent AGM on their competitive environment. All supports a very long runway of growth. All considered, if you confirm or relate to the value in their value proposition, PPH’s future is pretty bright. Come November, we will see a full period (6 months) of positive cash generation, positive EBITDA, increased Revenue vs already adjusted guidance, proof of cost containment. The broader market will soon get wise to the potential here and this should lead to a continuous re-rating of the SP. My investment horizon is 3 to 5 years.

Getting back to Chris Heaslip, the CEO replacement is ‘different’ but should prove to be effective. Suspect we will lose the Chris charisma. Gut says Chris may play a leading role with their first acquisition and the integration thereof. The new Chairman certainly did not shine at the AGM, but in fairness, a lot of the changes had only been announced a few weeks before.

Finally, worth revisiting the run rate exiting FY 19, looking at the ‘deferred Revenue’ number and then considering the guidance provided. I think we are dealing with heightened conservatism on the Business’ s part. Also, not sure this is not by design to facilitate the news on the Heaslip sale of shares and more importantly, the managed sale of another party’s interests. Picked up on the patter of trade since Feb to date ? Same algo, same patterns and continued through last week.

Slightly more than my two cents worth.

Rokewa