Propel Funeral Partners Limited

Well Positioned to Generate Sustainable Long-Term Growth and Shareholders’ Value: Propel Funeral Partners Limited (ASX: PFP) is Australia’s second-largest funerals and crematorium operator wherein many of its funeral homes have been operating since the late 1800s and early 1900s. The primary objective of the company is to create value through disciplined capital allocation and active portfolio management. For that, the company focuses on expanding its wings into favorable demographics markets through organic and inorganic initiatives. Over the years, the company has acquired and established death care assets, such as funeral homes, cemeteries and crematoria, and related properties and infrastructure which reinforced its growth momentum. On the analysis front, the Company has achieved a seven-year compound annual growth (CAGR) in funeral volumes of 82.0% to FY18. Resultantly, the company recorded revenue of 101.7% on CAGR basis over the same period and expects to raise topline growth in future backed by organic and inorganic growth. During FY14-18, average revenue per funeral and operating EBITDA grew by 3.5% and 90.7%, respectively on a CAGR basis. As a result, operating NPAT has grown at 101.7% over the last five years. This overall growth indicates that the company is well positioned to generate sustainable long-term growth and shareholder value on the back of strong funeral volumes growth, average revenue per funeral growth (ARFG) rate, and potential benefit from the full period impact of three acquisitions, i.e., Seasons Funerals, Brindley Group and Norwood Park which were completed in FY18.


Healthy Financials (Source: Company Reports)

Meanwhile, the stock price has fallen 14.33% in the past six months as at November 12, 2018 and traded close to lower level. Looking at strong performance in Q1FY19 under soft market conditions, considering benefits from synergistic acquisitions, other potential acquisitions by the company and healthy financials, we believe that the performance would continue in the upcoming period. We, therefore, recommend a “Speculative Buy” rating on the stock at the current market price of $2.570.

InvoCare Limited

Stable Market Share Amid Challenging Conditions: InvoCare Limited (ASX: IVC) ended 1H 2018 (June 30, 2018) by generating operating sales revenue amounting to $225.7 million implying the YoY growth of 0.4%. The company’s management stated that the results for the 1H 2018 were in-line with the expectations given. The YoY rise in the operating sales revenue was witnessed because of the realisation of deferred memorial sales.


IVC’s Volume Performance (Source: Company Reports)

The management reflected favourable views for “Protect & Grow” plan. The company has conducted numerous acquisitions which could help it in achieving growth momentum. In August 2018, it made an announcement regarding the acquisition of William Morrison Funerals which are having case volumes of around 720 cremations, 950 funeral cases as well as sales of approximately NZD$5.2 million. In 1H 2018, IVC lost case volumes because of the fall in the deaths, temporary closure of the locations as well as the shutdown of the US operations. However, the company’s management stated that considering these headwinds, its market share has stabilized.

InvoCare witnessed robust momentum in its Protect & Grow program, and the results from the program have exceeded the expectations. The management also reflected favourable views for the acquisitions which the company had made so that the network gaps can be addressed.

IVC’s Future: IVC has been making increased deployments towards the development of the Protect & Grow plan which could help the company in facing the hurdle of fluctuating customer preferences. In the 1H 2018, the demographics have not been much favourable for the company. The death rate in the Australian region witnessed a decline of 1.2%. The company’s management stated that the death number fluctuates in the long-term.

The company’s business got impacted by the NBO activity as it lost approximately 650 cases because of the closure of the locations in order to carry out renovation activities. Its market share might witness a rise moving forward, and the drivers for this are expected to be recent acquisitions, new locations as well as increased renovated locations. The case average of the company has exceeded the expectations in the locations which have been renovated. Therefore, increased renovated locations are expected to increase the case average moving forward.

Stock Analysis: Exponential Moving Average or EMA has been applied on the daily chart of InvoCare Limited by using the default values. As per the observation, the stock price has just crossed the EMA and might move downwards. We maintain our “Expensive” rating on the stock at the current market price of $11.930.   
 
 

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