Whether you’re a fan or not, new Environmental, Social, and Governance (ESG) reporting rules are imminent. The EU has passed extensive regulation that will kick in January 1 detailing, and I mean in great detail, what companies will be required to report. 

In a recent Bloomberg interview European Banking Authority Chairman Jose Manuel Campa said, banks need to stop complaining that new rules will make them “look bad” and accept that they’ll need to start reporting additional data in a few months. And while the new rules were formulated by the EU, they will impact a large number of U.S. based companies doing business in the EU.

One of the major complaints from the companies about ESG reporting is the cost of reporting. But, if you’re in the right business…the business of helping companies accurately report their ESG activity…like Blackbaud (BLKB) is, then the new regulations will be a boon. 

Blackbaud is a software as a service (SaaS) company operating in the charitable giving, ESG, and payment processing spaces. The company offers a broad range of software solutions, from fundraising and accounting, to grant management, to merchant services/payment processing, to ESG/employee giving and volunteering tracking. 

In 2022 Blackbaud acquired EverFi, which according to then EverFi COO Ellen Patterson, brought together “two of the largest technology players in the social impact space creating one definitive leader for corporate social relations [CSR] and environment, social, governance [ESG] solutions.”

Following on the closing of the EverFi acquisition, Blackbaud has been on an undertaking to not only improve their product offering (by implementing a range of AI solutions) but to address internal costs and revamp their customer pricing approach.

As a result, Blackbaud is forecasting a move from low single digit revenue growth in 2022-’23 to high single digit to double digit revenue growth in 2024. 

In essence, the company is moving from a convoluted revenue picture, in some cases companies would lock in multi-year contracts with no revenue increases, to a much more aggressive rate increase schedule even when negotiating multi-year contracts.

This should substantially increase revenue, especially as they expand the base obtained via the EverFi acquisition. 

BLKB is also, as mentioned above, bringing AI into their product offerings across the board. Their “Intelligence for Good” strategy is aimed at improving donation conversion rates by mining vast amounts of data possessed by universities and charitable institutions, which often have a trove of information readily collected on alumni and donors. 

One of the advantages of a SaaS offering is that the business is scalable. So, if Blackbaud can manage expenses and raise prices, as it is currently doing, that revenue should fall straight to the bottom line.

The company operates with almost 52% gross margins, and should be able to substantially increase operating margins over the next year. 

BLKB trades at just under 3 times sales, and anticipates both paying down debt and commencing share repurchases as cash flow increases in late 2023 into 2024. 

The company has an overall B rating in our POWR Ratings, where it outranks almost 82% of stocks tracked in our database. Blackbaud’s top rating is in Stability, where it comes in better than right at 89% of stocks we track, and it also rates highly for Growth. 

The stock traded down to the $40s post pandemic, before rebounding to the $80s in late 2021. A recent pull back to just under $70 may be an opportunity to enter BLKB for a possible run back near $120 where it traded in late 2018.  

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BLKB shares were trading at $70.68 per share on Tuesday morning, up $1.02 (+1.46%). Year-to-date, BLKB has gained 20.08%, versus a 15.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Steven Adams

After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...

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