Forsyth Barr initiates Pushpay coverage with a true believer's price target

Pushpay's app digitises the process of "passing the plate" to collect donations from a church congregation, and offers tools for managing messaging. Photo / Supplied

Does Pushpay have further to go on its bull run, which has seen it rise 135 per cent this year?

The answer is a strong yes, according to Forsyth Barr, which initiated coverage today with an "outperform" rating and a $12.42 price target.

Pushpay

Pushpay shares, which have dipped recently following a big run-up since mid-March, were down 0.63 per cent to $7.90 in midday trading for a $2.2 billion market cap.

The mean analyst rating is "hold", according to Reuters.

The Auckland based maker of donation and church management software, which does 98 per cent of its business in the US, has seen its stock spike as American congregations have moved online, stoking demand for Pushpay's virtual-giving app.

The company was already in a strong growth mode for the first-half, before its Covid lift, in part due to its $132m acquisition of Colorado-based church management software company, Church Community Builder in December - a move that gave Pushpay a full-service suite of software for the first time.

At the company's virtual AGM last month, operating earnings guidance for 2021 was lifted from US$48 million-$52m to US$50m-$54m.

Pushpay faces only one major competitor, Blackbaud, whose customer base consists largely of Catholic churches, allowing Pushpay an unchallenged run at Protestant congregations.

But where some analysts see Pushpay as fully-valued, ForBarr analyst Jamie Foulkes sees the rise of "pajama church" in North America, and potential expansion into other markets, driving another big jump in market cap.

Pushpay

The company's recently pullback has coincided with cornerstone investor the Huljich family selling 25 per cent of its stake in a $124m block trade, and the resignation of the company's first female director, Justine Smyth, just weeks after she stood for election at the company's June AGM. Smith, who remains chair of Spark's board and a director of Auckland International Airport, told the Herald she quit Pushpay for "personal" reaons.

Even though it's in growth mode, Pushpay's net profit of US$16m on US$129.8m revenue makes its NZ$2.2b valuation look heady, by traditional metrics.

"We acknowledge headline numbers do not look cheap, [but] relative to software peers Pushpay currently offers attractive value," Foulkes wrote in his maiden research note for ForBarr.

The analyst sees Pushpay net profit rising every year through to $54.5m in 2023 (the limit of his forecast), while its revenue rises to $243.2m in the same period.

Foulkes says lack of competition, a global increase in digital giving and room to grow are all factors in his bullish rating.

He notes that despite its recent growth spurt, Pushpay is still only in 58 of the 100 largest "megachurches" in the US.

CEO Bruce Gordon has affirmed the company's strategy to be "laser-like" focused on the US faith sector and in the longer term, Pushpay is mulling a move into the education and non-profit sectors."

Foulkes sees a total addressable market of around $3 billion.