But in a follow-up note overnight, Jarden maintained its neutral rating on Eroad and slashed its 12-month target price from $2.75 to $1.75 and cut its FY2024 and FY2025.
Analyst Guy Hooper said the North American wins were meaningful. He estimates the Sysco deal will bring in around $6m per year, equating to around 4 per cent of Eroad’s annual revenue.
But that was within Jarden’s existing growth forecast.
And while Eroad had signalled moves to cut costs, Hooper saw inflation and the economic slowdown leading to longer lead times for orders. Trucking was also one of the most cyclical industries, making it one of the most vulnerable to recession.
Craigs Investment Partners’ analyst Josh Dale called Eroad’s American deals “much-needed good news” after an “annus horribilis’ that saw shares fall from a high of $6.70 in July last year to $1.38 following the abrupt departure of longtime chief executive Steven Newman.
However, Dale also tempered that while the revenue forecast was effectively unchanged, if you took the midpoint, it was arguably a modest downgrade given the NZ dollar had depreciated 10 per cent since Eroad’s last update. He retained his neutral rating.
New Eroad CEO Mark Heine recently told the Herald that his firm had made technology and strategy missteps in the key US market - but that its $158m takeover of rival Coretex, and shifts in approach, would turn around its fortunes in the territory.
Hooper said there was execution risk as the two firms integrate.
Eroad reports its half-year result on November 25.
Pushpay customers: Keeping the faith
Pushpay, which will report its first-half result on November 9, has already pre-released what Hooper called “disappointing” numbers.
The maker of church donation and management software said first-half revenue would be up 10 per cent to US$103m based on Pushpay’s acquisition of streaming provider Resi Media. Adjusting for Resi, revenue was “flat to down”, Hooper said, representing a second slow (northern) summer in a row. Pushpay also flagged that its underlying earnings would fall 10 per cent to US$27m based on the costs of its early push into the Catholic segment (so far, nearly all of the Kiwi American firm’s revenue has come from Protestant churches).
So why is Pushpay a safer bet than some NZX-listed tech stocks?
Quite literally, because its customers are keeping the faith.
“US giving to religious organisations has declined year on year only once in the past 44 years,” Hooper notes.
His take is that giving could slow, “but is unlikely to experience prolonged periods of softness in an economic downturn”.
Pushpay has also closed a couple of large deals recently, with the Archdiocese of Seattle and the US Army Chaplain Corps, a public service organisation that services over one million active, reserve and retired US soldiers - a deal that Hooper says is worth $4m and more importantly “marks a push into public service organisations and a potentially meaningful expansion of the total-addressable market”.
Is Hooper right to say Pushpay has a resilient customer base?
We may never know.
Sixth Street and BGH Capital, which collectively hold a 20.3 per cent stake, have bid $1.34 per share or $1.53 billion for the company, or a 30 per cent premium on the “undisturbed” price of $1.03 on April 22 before takeover talk first emerged, if only 13 per cent above the trading price immediately before the offer was formalised.
A vote is expected in the first quarter
Forsyth Barr’s Andy Bowley and Mark Robertson said in an October 32 note, “We can’t rule out additional interest and higher bids from other potential suitors.” Other analysts say it’s likely too late in the process for other bids to emerge.
In the event Pushpay remains a listed company - and some shareholders and fund managers see the offer as too cheap - Bowley and Robertson say it faces challenges. While the company has dominated Protestant megachurches in the US it faces a fragmented market and cheaper competitors for the smaller church market, and the outcome of its push into the Catholic segment, where it faces Nasdaq-listed Blackbaud, is far from certain.
