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).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Pushpay Holdings Ltd</h2>
<p><strong>The Gift That Keeps On Giving...</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>We initiate coverage of Pushpay (PPH) with an OUTPERFORM rating and target price of NZ$12.42. PPH is the current market leader in providing customised, innovative giving technology for large US churches. This is confirmed by discussions with over 50 churches, industry experts and competitors. PPH is well placed to benefit from the ongoing consolidation of US churches and thematic shift towards digital giving, accentuated by COVID-19. For example, one PPH competitor we spoke to generated more sales in the first two months of COVID-19 than the whole of 2017 and 2018 combined. In recent months online 'pyjama church' has been a hit, with many US churches looking to continue online services longer-term. With 98% of customers in North America there is also optionality for expansion in new markets. We believe the risk to FY21 EBITDAF guidance is to the upside due to sustained church customer donation volumes and cost stability across the business.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/469/original/image_61593940221595463559915.png?1595463562" class="editor-image img-responsive" data-smartkarma-image-id="147469"></figure>
<h3>Favourable structural tailwinds</h3>
<ul type="disc">
<li>Soaring processing volumes are driven by the growth in number, size and donations of large US megachurches.&nbsp;PPH's&nbsp;customer base includes 58 of the largest 100 US megachurches. US megachurches have grown at a consistent rate over the past 40 years with a 2015 survey showing 32.5% to have grown at an annual average attendance of over 50%. Currently, the largest US&nbsp;megachurches report average weekly attendance in excess of 50,000 members with annual donations of over US$150m.&nbsp;</li>
<li>Giving is a biblical principal&nbsp;considered relevant to churchgoers today. While the average proportion of donors per congregation has increased over time, average donation size correlates with disposable income. We estimate average&nbsp;PPH&nbsp;customer digital adoption to have been 50% prior to&nbsp;COVID-19, rising to over 65% in recent months. We see low risk of reversion to cash donations with many churches unwilling to handle physical donations for the foreseeable future.&nbsp;</li>
</ul>
<h3>Some customer churches ran out of superlatives for 'outstanding' PPH product...</h3>
<ul type="disc">
<li>Customer churches rate&nbsp;PPH&nbsp;highly for reliability, quality and functionality. Some churches have seen an increase of +50% in donations&nbsp;on moving to&nbsp;PPH, while for a large church we estimate processing fees to be less than 1% of total expenses.&nbsp;</li>
<li>PPH&nbsp;competes in a&nbsp;fragmented market of over 250 providers, many of which operate as not-for-profit entities and provide a much more basic level of service, aimed mainly at&nbsp;smaller churches. We provide a thorough analysis of major competitors with&nbsp;PPH's&nbsp;one-stop-shop bundle considered best-in-class.&nbsp;Competition around bespoke large church software packages is limited.</li>
</ul>
<h3>Sustained long term growth driven by digital adoption, megachurch growth, increasing market share and consistent giving</h3>
<p>Although we acknowledge headline numbers do not look cheap, relative to software peers&nbsp;PPH&nbsp;currently offers attractive value. We set a target price of&nbsp;NZ$12.42 using a&nbsp;blended&nbsp;DCF/multiple&nbsp;<wbr>approach.&nbsp;With a PE multiple of 38x and two&nbsp;year&nbsp;EPS&nbsp;CAGR&nbsp;of 23%, we note the PE multiple drops away quickly. Given the company's growth profile we consider an EV/Sales multiple of 14x to be undemanding and expect high cash generation to support acquisition-based growth longer-term.&nbsp;</p>
<p><strong>Jamie Foulkes</strong><br>jamie.foulkes@forsythbarr.co.nz<br>+64 4 491 2217</p>

Pushpay Holdings Ltd
The Gift That Keeps On Giving...
OUTPERFORM
We initiate coverage of Pushpay (PPH) with an OUTPERFORM rating and target price of NZ$12.42. PPH is the current market leader in providing customised, innovative giving technology for large US churches. This is confirmed by discussions with over 50 churches, industry experts and competitors. PPH is well placed to benefit from the ongoing consolidation of US churches and thematic shift towards digital giving, accentuated by COVID-19. For example, one PPH competitor we spoke to generated more sales in the first two months of COVID-19 than the whole of 2017 and 2018 combined. In recent months online 'pyjama church' has been a hit, with many US churches looking to continue online services longer-term. With 98% of customers in North America there is also optionality for expansion in new markets. We believe the risk to FY21 EBITDAF guidance is to the upside due to sustained church customer donation volumes and cost stability across the business.&nbsp;

Favourable structural tailwinds

Soaring processing volumes are driven by the growth in number, size and donations of large US megachurches.&nbsp;PPH's&nbsp;customer base includes 58 of the largest 100 US megachurches. US megachurches have grown at a consistent rate over the past 40 years with a 2015 survey showing 32.5% to have grown at an annual average attendance of over 50%. Currently, the largest US&nbsp;megachurches report average weekly attendance in excess of 50,000 members with annual donations of over US$150m.&nbsp;
Giving is a biblical principal&nbsp;considered relevant to churchgoers today. While the average proportion of donors per congregation has increased over time, average donation size correlates with disposable income. We estimate average&nbsp;PPH&nbsp;customer digital adoption to have been 50% prior to&nbsp;COVID-19, rising to over 65% in recent months. We see low risk of reversion to cash donations with many churches unwilling to handle physical donations for the foreseeable future.&nbsp;

Some customer churches ran out of superlatives for 'outstanding' PPH product...

Customer churches rate&nbsp;PPH&nbsp;highly for reliability, quality and functionality. Some churches have seen an increase of +50% in donations&nbsp;on moving to&nbsp;PPH, while for a large church we estimate processing fees to be less than 1% of total expenses.&nbsp;
PPH&nbsp;competes in a&nbsp;fragmented market of over 250 providers, many of which operate as not-for-profit entities and provide a much more basic level of service, aimed mainly at&nbsp;smaller churches. We provide a thorough analysis of major competitors with&nbsp;PPH's&nbsp;one-stop-shop bundle considered best-in-class.&nbsp;Competition around bespoke large church software packages is limited.

Sustained long term growth driven by digital adoption, megachurch growth, increasing market share and consistent giving
Although we acknowledge headline numbers do not look cheap, relative to software peers&nbsp;PPH&nbsp;currently offers attractive value. We set a target price of&nbsp;NZ$12.42 using a&nbsp;blended&nbsp;DCF/multiple&nbsp;approach.&nbsp;With a PE multiple of 38x and two&nbsp;year&nbsp;EPS&nbsp;CAGR&nbsp;of 23%, we note the PE multiple drops away quickly. Given the company's growth profile we consider an EV/Sales multiple of 14x to be undemanding and expect high cash generation to support acquisition-based growth longer-term.&nbsp;
Jamie Foulkes jamie.foulkes@forsythbarr.co.nz +64 4 491 2217

Pushpay Holdings Ltd: The Gift That Keeps On Giving...