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Trading Diary

Trading Diary – 13 February 2020

We’ve purchased Pushpay Holdings (PPH) in the Model Portfolio. PPH takes the number of holdings in the Model Portfolio to 17 and reduces our cash balance to ~5%.

Buy

Pushpay Holdings (PPH)

Pushpay is a mobile payments company that focuses primarily on the church giving and charity sectors. It has more than 7,000 customers, mostly churches, based predominantly in the United States. The company is also the leading provider of church management software with over 4,000 customers in the US faith sector.

Technicals

The stock has been trading in a range since the end of 2017. PPH listed on the ASX at $2.09 in October 2016. It spent the next 11 months in a reasonably wide trading range. Once it broke out of this range the stock appreciated more than 110% over the next 14 weeks. The uptrend ended at the beginning of January 2018.

Since then the stock has moved sideways in a range. The trading range followed the pattern of a conventional Wyckoffian reaccumulation, with a buying climax, followed by an automatic reaction and then multiple tests of both the support and resistance lines. The stock finally “jumped across the creek”, using Wyckoff parlance at the end of last year, which was followed by a sign of strength rally on above-average volume.

We’ve initiated our position as the stock emerged from a brief pullback and looked like the beginning of a new uptrend.

Fundamentals

Pushpay has reached a significant inflection point, having become profitable during the last 12 months. Operating revenue per annum has grown from a standing start in 2014 to $165m in 2019. The company has forecast operating income of $185m in 2020. All the while, gross margins have expanded from 55% to 65%.

Faith-based giving will continue to migrate online, mainly via mobile. As a result, Pushpay’s volume-based revenue will continue to grow. The combination of continued strong growth in operating income and expanding gross and operating margins is likely to lead to an acceleration of profitability over the next few years.

Pushpay also recently announced the acquisition of Church Community Builder, a US-based provider of church management solutions to over 4,000 churches in the US faith sector. This acquisition provides Pushpay with another avenue for growth and the ability to further embed its products in its customer’s technology stacks.

By Danny Sandler

Founder of Ocean Asset Management.