Pushpay has target trimmed despite upgrade in earnings forecast

New Pushpay chief executive Molly Matthews. Photo / LinkedIn

Pushpay has had its 12-month target price trimmed from $2.31 to $2.00 by Forsyth Barr analyst Jamie Foulkes, despite the faith tech company upgrading its earnings forecast for a fourth time.

ForBarr maintained its neutral rating. The wealth manager initiated coverage with an outperform rating last July before downgrading it to neutral in November after Pushpay upped its operating earnings guidance (for what was then the third time) but also revealed that customer growth had flattened.

The November update spurred a mini-slump in Pushpay shares that was not arrested by last week's update - although the fall is relative (see chart below). The stock has fallen from $2.33 in November to a recent $1.60 (for a $1.9 billion market cap), but is still up 45 per cent over the past year and well up on its March low of 64c at the height of Covid-19 trepidation.

On January 12, Pushpay upgraded its FY2021 operating earnings guidance from between US$54 million and US$58m to US$56–60m, and announced that chief executive Bruce Gordon (who in June last year announced his intention to depart) would be replaced in an internal promotion by chief customer service officer Molly Matthews - the first American to lead the NZX-listed company, which does the vast majority of its business in the United States.

Foulkes said he was surprised by Matthews' appointment, but not by the bump in guidance, which was in keeping with analyst consensus.

Pushpay offers software for digital giving and managing a congregation. The pandemic pushing services online was a spur for many churches to adopt Pushpay during the first wave of lockdowns, and Foulkes says most will keep it long term, even though they have begun to reopen their doors to real-life services.

But after the November revelation that customer ads had slowed, Foulkes now sees a soft start to Pushpay's new financial year.

In its January 12 update, Pushpay also said it had "allocated an initial investment of resource into developing and enhancing the customer proposition for the Catholic segment of the US faith sector. Focused investment into the Catholic segment represents a significant milestone".

Analysts have seen Pushpay as dominant in the Protestant sector (and more so since it bought Colorado-based Church Community Builder for $132m in December 2019) but with a limited presence among Catholic congregations.

Notably, new chief executive Matthews has long-time involvement with a Christian youth organisation that emphasises it is equally open to Catholics and Protestants.

Foulkes was not moved. He said that in his view Catholic churches represented "a far smaller opportunity than nondenominational and evangelical churches."

Earlier, Craigs Investment Partners' Stephen Ridgewell told the Herald that while Pushpay had the Protestant market to itself, the Catholic sector in the US had a strong incumbent: The Nasdaq-listed Blackbaud, which has a market cap of US$3.2b.

SELL-DOWN THREAT

Forbarr's Foulkes also warns that the threat of further shareholder sell-downs is "weighing heavily on the stock."

Pushpay shares were halted on December 15 ahead of sales by co-founder and former chief executive Chris Heaslip and director Christopher Fowler, who sold a combined $95.7m of shares.

The block trades followed an announcement by the departing Gordon that he would sell half of his $12.4m stake, and a $124m sale by anchor investors the Huljich family last July.

Despite their partial sell-down, the Huljiches remain the largest single investor in Pushpay.