Pushpay share price: leading broker raises price target to $5

We examine Pushpay’s recent acquisition of Church Community Builder as well as RBC Capital Market’s latest bullish take on the stock.

Following Pushpay’s (ASX: PPH) recent US$87.5 million acquisition of the U.S. faith-focused company: Church Community Builder (CCB), RBC Capital Markets has today upgraded their share price target on PPH – from $4.50 per share to $5.00 per share – while also retaining their OUTPERFORM rating.

Though RBC noted that the 2019 calendar year mostly proved to be a difficult one for Pushpay, the investment bank is ‘positive on 2020 and see[s] strong earnings growth continuing in FY21/22 on operational leverage.’

The Church Community Builder acquisition

Ultimately, Pushpay's recent CCB acquisition is expected to magnify revenue growth and see an improvement in margin, notes the company.

In saying that, PPH did note that 'the business combination is not expected to have a material impact on Pushpay's revenue or EBITDAF in the current financial year to 31 March 2020 due to the development work required to further integrate the product offerings.'

The material benefits of this acquisition are expected to be realised from FY22 onwards.

CCB’s founder, Chris Fowler, will continue to take an active role in the combined business, joining PPH's Board as an Executive Director. Demonstrating his commitment to Pushpay and as was revealed in the initial acquisition announcement: Mr Fowler acquired 6.5 million PPH shares – equating to a 2.4% stake in the company.

Looking at the specifics of this deal, the US$87.5 million acquisition was funded through a combination of cash on hand and debt, including the 'proceeds from an amortising senior secured debt facility of US$62.5 million.'

Pushpay share price: the RBC bull thesis

Though PPH may have underperformed some of its more flashy payments and tech peers during the majority of 2019 – the company looks to caught the attention of investors in the last few months – with its share price rising ~40% since the beginning of November.

Pushpay (ASX: PPH) currently trades at the $4.13 mark, ~17% below RBC’s bullish price target.

Looking towards CY20, RBC argues that:

‘We believe PPH's re-rate in 2020 is likely to continue driven by consensus earnings upgrades in FY21/22 on PPH's operational leverage.’

In step with those kind of expectations, and considering that delayed accretive benefits of the CCB acquisition, RBC has raised its top and bottom-line expectations on the stock over the coming fiscal periods. Revenue is now expected to come in 2% and 14% higher in FY20 and FY21; while earnings (EBITDA) expectations have also been upgraded: flat in FY20, but up 7% in FY21.

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