Australia | Dec 18 2019
Brokers anticipate the acquisition of Church Community Builder by Pushpay Holdings will provide additional value and stabilise front book growth.
-Opportunity to consolidate processing volume on Pushpay platform
-Strong competition in the sector needs to be monitored closely
-Guidance reiterated for FY20
By Eva Brocklehurst
Donations system provider Pushpay Holdings ((PPH)) has acquired a church management business to round out its product offering. Brokers anticipate the deal should help reduce churn and stabilise the outlook for the company.
This expectation stems from the Pushpay's ability to offer a more comprehensive solution. Church Community Builder has been acquired for US$87.5m, to be funded through a combination of cash in hand and US$62.5m in senior secured debt.
UBS was not that surprised by the acquisition. Industry feedback suggests CCB is one of the best providers in the US and the two companies have similar target markets and cultures. The two platforms have interacted since 2014 and the combined group will have around 10,000 customers.
The strategic rationale is sound, Macquarie agrees, and Pushpay stock offers value. Moreover if growth in the front book can be stabilised, additional value should emerge.
On this point, Ord Minnett is more circumspect, awaiting further evidence that growth is stabilising, and that the acquisition can deliver an attractive return on the price paid. Hence, the broker maintains a Lighten rating and $2.70 target.
In the near term, Ord Minnett envisages an opportunity to consolidate the processing volume onto the Pushpay platform and improve the economics. Beyond that, there is also the chance to offer a combined solution to churches, but this is not without some challenges.
Macquarie also notes competition is strong in the sector and remains something to be monitored closely. Staged benefits within the Pushpay Holdings core business are expected and the broker considers the medium-term outlook has now been de-risked, upgrading to Outperform from Neutral and raising the target to NZ$4.61.
In the near term, Ord Minnett envisages an opportunity to consolidate processing volume onto the Pushpay platform and improve its economics. Beyond that, there is also the chance to offer a combined solution to churches, but this is not without some challenges.
No valuation metrics were disclosed but UBS estimates enterprise value/sales of around 5x, which appears high for a private acquisition. However, the potential benefits centre on the expansion of customers & products, market share gains and savings on marketing & technology.
Pending further analysis, UBS places its Buy rating and NZ$3.75 price target under review. The broker notes there was no change to FY20 guidance as the acquisition will take time to integrate. Excluding CCB, Pushpay Holdings has reiterated guidance for FY20, including revenue of US$121-124m, a gross margin over 63% and operating earnings (EBITDAF) of US$23-25m.
Church Community Builder founder Chris Fowler will join the board as an executive director and has also acquired a 2.4% interest in Pushpay Holdings. Macquarie suggests Mr Fowler is a likely candidate to take over from the current Pushpay CEO Bruce Gordon at some stage.
Church Community Builder has revenue of around US$10m, comprising 72% from subscriptions relating to its church management system product. Processing revenue is also collected via integrated providers.
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