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OUTPERFORM
Proprietary feedback from over 25 US churches indicates that 1) average total giving for 2020 YTD ranges between +3% to
+19% vs the prior year and that 2) digital penetration across medium to large churches has averaged 80% over the last six
months. This is driven predominantly by increased church attendance through online channels, higher levels of aggregate
generosity and unwillingness by church staff to handle cash. We raise our FY21 EBITDA forecast to US$60.8m against a
consensus of US$55.1m, applying a conservative +1% for PPH's front book growth rate in FY21. This is principally due to
COVID-19 restrictions limiting sales contact with prospective customer churches, and church elders postponing technology
related decisions. We recognise that our forecasts now exceed PPH's current guidance (between US$50m and US$54m) by
more than +10% and consequently expect the company to tighten or raise its FY21 guidance at the upcoming interim result.
What's changed?
Interim results expected to demonstrate jump in digital penetration
We recognise the wide margin for error in forecasting PPH's 1H21 interim result given the range of potential underlying drivers and
2H21 split of timing of costs and fees. This is in addition to a traditionally stronger second half of the year due to increased donations
at Christmas (1H20/1H19 accounting for 44% of full year processing revenue). However, we expect the processing revenue split to be
more even this year (our 1H21 estimate reflects a 48%:52% split) given the strong donations seen at the start of FY21 and expected
slowdown of the front book in 2H21. We expect to see a 1H21 jump in digital penetration and forecast EBITDA of US$29.4m.
Attendance numbers remain firm
Churches that we have spoken to have indicated that online service offerings have significantly increased overall attendance, with
one church estimating aggregate attendance to be triple regular physical church. With US churches sporadically re-opening their
doors since June, state by state, we estimate average physical church to currently account for between 20% and 50% of attendees.
Many churches are now also increasing the number of services over the duration of the week in light of social distancing, with services
on a weekday proving popular. We see this as a potential catalyst to drive longer term attendance and donations.
Valuation
We raise our target price to NZ$13.86, driven by our increased DCF valuation, more than offsetting the decrease in our implied EV/
Sales multiple valuation. Our multiple approach is underpinned by our FY22 sales growth rate which decreases to 15% from 17% due
to the abrupt hike in digital penetration in FY21; which was previously expected to grow incrementally across a number of years.
NZX Code PPH
Share price NZ$9.18
Target price NZ$13.86
Risk rating High
Issued shares 275.4m
Market cap NZ$2,528m
Avg daily turnover 638.9k (NZ$4,019k)
Financials: Mar/ 20A 21E 22E 23E
NPAT* (NZ$m) 26.9 61.9 74.1 89.4
EPS* (NZc) 9.8 22.4 26.8 32.3
EPS growth* (%) -3.1 n/a 19.7 20.4
DPS (NZc) 0.0 0.0 0.0 0.0
Imputation (%) 0 0 0 0
*Based on normalised profits
Valuation (x) 20A 21E 22E 23E
PE 94.1 40.9 34.2 28.4
EV/EBIT 76.1 29.6 24.6 20.8
EV/EBITDA 60.7 27.0 22.8 19.5
Price / NTA n/a n/a 24.4 12.8
Cash div yld (%) 0.0 0.0 0.0 0.0
Gross div yld (%) 0.0 0.0 0.0 0.0
FY21 EBITDA: Increased from US$55.9m to US$60.8m
Target price: Increased from NZ$13.05 to NZ$13.86