New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Pushpay Holdings<br>1H22 Result: Down but Not Out&nbsp;</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Pushpay's (PPH) 1H22 result was disappointing with a miss at both the revenue and EBITDA lines driven by weaker processing volumes in Q1. This was predominantly a result of online church 'fatigue' in the US driving lower donations per congregational member. Combined with rising cost pressure, PPH also downgraded its FY22 guidance by -US$5m (6%) at the midpoint. In the current inflationary environment we are not sanguine that&nbsp;PPH can pass on rising cost pressures in the form of fee increases given 1) its typical three year fixed contracts, and 2) intense competitive pressures at a cost level. That said, the company does expect to experience an improved 2H22 period as churches reopen physically, aided by the added boost of the seasonal Christmas giving period. We also believe new CEO Molly Matthews has been successful in lowering the recent rate of churn. PPH has now moved into the next stage of its life cycle with a more mature growth profile, but still remains the industry leader of US church tech.&nbsp;Despite the significant stock move on the day, we view the current price as balanced risk reward given the re-set expectations and updates to forecasts/international peer comps. Retain NEUTRAL.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;We lower our underlying FY22&nbsp;EBITDA from US$69m to US$62m&nbsp;vs updated company guidance of US$60m–US$65m</li>
<li><strong>Target price</strong>:&nbsp;We reduce our target price from NZ$1.85 to NZ$1.71&nbsp;reflective of&nbsp;earnings updates&nbsp;and&nbsp;peer multiple comps&nbsp;</li>
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<h3>Rising cost pressure weighing on margins</h3>
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<p>PPH reported a significant increase in marketing spend while&nbsp;also aiming to increase its&nbsp;FTEs&nbsp;to ~570&nbsp;at FY22 (reported 547 at 1H22 of which 123&nbsp;are from the acquisition of Resi Media).&nbsp; With wage pressure for data engineers growing in both Auckland and the US we expect increasing cost pressures to weigh on&nbsp;PPH's&nbsp;EBITDA margin. As such, we&nbsp;lower our terminal margin from to 32% from 30%.&nbsp;</p>
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<h3>Catholic commentary underwhelming</h3>
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<p>While the company has set ambitious targets for its foray into the Catholic sector we have seen little material progress during 1H22. With PPH looking to enhance its Catholic product offering over the next 18 months, it is expecting to generate Catholic revenue in 2023. As a result, we update our assumptions and remove the majority of our forecast Catholic revenue from FY22.&nbsp;</p>
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<h3>Competitor Tithe.ly product update</h3>
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<p>Low cost competitor Tithe.ly also released its latest product update with a growing focus on data and analytics, launching 'Tithe.ly Insights'. This is an area that PPH has historically exceeded competitor offerings. We expect Tithe.ly to continue growing its presence in the US market and compete&nbsp;for churches in the small to medium category, with the company now offering its services in multiple languages, including French and Spanish. We also note the additional emphasis by Tithe.ly&nbsp;on its R&amp;D spend over the coming years.&nbsp;</p>
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Pushpay Holdings 1H22 Result: Down but Not Out&nbsp;

NEUTRAL
Pushpay's (PPH) 1H22 result was disappointing with a miss at both the revenue and EBITDA lines driven by weaker processing volumes in Q1. This was predominantly a result of online church 'fatigue' in the US driving lower donations per congregational member. Combined with rising cost pressure, PPH also downgraded its FY22 guidance by -US$5m (6%) at the midpoint. In the current inflationary environment we are not sanguine that&nbsp;PPH can pass on rising cost pressures in the form of fee increases given 1) its typical three year fixed contracts, and 2) intense competitive pressures at a cost level. That said, the company does expect to experience an improved 2H22 period as churches reopen physically, aided by the added boost of the seasonal Christmas giving period. We also believe new CEO Molly Matthews has been successful in lowering the recent rate of churn. PPH has now moved into the next stage of its life cycle with a more mature growth profile, but still remains the industry leader of US church tech.&nbsp;Despite the significant stock move on the day, we view the current price as balanced risk reward given the re-set expectations and updates to forecasts/international peer comps. Retain NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;We lower our underlying FY22&nbsp;EBITDA from US$69m to US$62m&nbsp;vs updated company guidance of US$60m–US$65m
Target price:&nbsp;We reduce our target price from NZ$1.85 to NZ$1.71&nbsp;reflective of&nbsp;earnings updates&nbsp;and&nbsp;peer multiple comps&nbsp;



Rising cost pressure weighing on margins


PPH reported a significant increase in marketing spend while&nbsp;also aiming to increase its&nbsp;FTEs&nbsp;to ~570&nbsp;at FY22 (reported 547 at 1H22 of which 123&nbsp;are from the acquisition of Resi Media).&nbsp; With wage pressure for data engineers growing in both Auckland and the US we expect increasing cost pressures to weigh on&nbsp;PPH's&nbsp;EBITDA margin. As such, we&nbsp;lower our terminal margin from to 32% from 30%.&nbsp;


Catholic commentary underwhelming


While the company has set ambitious targets for its foray into the Catholic sector we have seen little material progress during 1H22. With PPH looking to enhance its Catholic product offering over the next 18 months, it is expecting to generate Catholic revenue in 2023. As a result, we update our assumptions and remove the majority of our forecast Catholic revenue from FY22.&nbsp;


Competitor Tithe.ly product update


Low cost competitor Tithe.ly also released its latest product update with a growing focus on data and analytics, launching 'Tithe.ly Insights'. This is an area that PPH has historically exceeded competitor offerings. We expect Tithe.ly to continue growing its presence in the US market and compete&nbsp;for churches in the small to medium category, with the company now offering its services in multiple languages, including French and Spanish. We also note the additional emphasis by Tithe.ly&nbsp;on its R&amp;D spend over the coming years.&nbsp;


Pushpay Holdings: 1H22 Result: Down but Not Out