InvoCare Limited

IVC To Acquire Australian Heritage Funerals at Toowoomba Queensland: Sydney based, InvoCare Limited (ASX: IVC) has an engagement in the funeral industry in Australia, New Zealand and Singapore. The company recently announced that it has entered into a conditional purchase agreement to acquire Australian Heritage Funerals located in Toowoomba Queensland.The acquisition includes a long-term lease over the existing funeral home, mortuary and chapel. The facilities will also be used to support InvoCare’s current businesses in the Toowoomba region.

March ’19 Quarter Key Highlights: The Group’s sales revenue increased by 7.8% (unaudited and pre-adoption of AASB16 compared to previous comparable period), which can be supported by the fact that the soft market conditions had started to improve, with the number of deaths beginning to revert to the long-term trend.Operating EBITDA of the group increased by 22.2% on pcp, and operating margin increased by 2.5 ppts on pcp.

FY18 Financial Performance: Operating sales revenue increased from $470.85 Mn in FY17 to $477.34 Mn in FY18. Operating EBITDA decreased from $124.32 Mn in FY17 to ~$119 Mn in FY18.


FY18 Key Financial Metrics (Source: Company Reports)

What to expect: The company has tried to stay away in providing a full-year forecast at this time, due to the difficulty associated with accurately forecasting winter trading. Whilst it is never easy to implement transformational change, especially in a year with lower year on year demand, InvoCare remains confident that the investment in its growth strategies will deliver sustainable double-digit operating EBITDA and EPS growth in the medium to long term.

Stock Recommendation: IVC’s share generated positive YTD return of 62.66%. It is presently trading close to its 52 weeks high level of $16.770, which increases the probability for correction from the current level. Its gross margin for FY 2018 stood at 74.1%, better than the industry median of 68.5%. On the valuation front, its EV/Sales and EV/EBITDA multiple are trading at 4.7x and 17.4x, higher than the industry median of 2.0x and 9.2x, respectively.

Hence, considering the aforesaid facts coupled with stretched valuations and current trading level, we suggest investors to keep a close watch on the stock at the current market price of $16.240 per share (down 0.673% on July 17, 2019), and wait for better entry levels.
 

Chorus Limited

Fibre Connections In Q4 Increased By 50% Of Chorus’ Total Broadband Connections: Communication sector company, Chorus Limited (ASX: CNU), on July 17, 2019, announced about the issuance of new Crown Infrastructure Partners (CIP) securities which comprises 4,730,258 CIP Equity Securities (unquoted); 4,730,258 CIP Debt Securities (unquoted); 141,729 CIP Warrants (unquoted); and 4,285,484 CIP Equity Securities (unquoted).

In another update, the company provided Q4 FY19connections update, where it highlighted that the fibre connections in Q4 period grew to 50% of Chorus’ total broadband connections.Its total broadband connections grew by 5K to 1,196,000 as compared to the previous quarter. This can be supported by the fact that demand for 1 Gbps connections grew to 58K connections as compared to 50K connection in March ’19. The fibre demand was strong as 50K fibre installations were completed.

The total fixed line connections fell by 22K to 1,450,000 in Q4, as compared to the previous quarter. This can be attributed to the increase in the voice only disconnections as retailers targeted their customers with wireless voice. CNU’s monthly average data usage grew to 265GB, which can be supported by the fact that fibre users now average 341GB monthly, which is an increase from 329GB in March; Aucklanders now average 364GB monthly on fibre and 308GB monthly across copper and fibre; and the peak time data usage has begun exceeding 2Tbps which is 77% more from the June 2017 level.

H1FY19 Financial Performance: The operating revenue decreased from $499 Mn in H1 FY18 to $489 Mn in H1 FY19. This can be attributed to the falling copper revenue as customers migrate to fibre or competing fibre/wireless networks. The operating expenses increased from $170 Mn in H1 FY18 to $171 Mn in H1 FY19. This can be attributed to an increase in rates, rents and property maintenance costs as the fibre network expanded.


H1FY19 Income Statement (Source: Company Reports)

What to expect: The company aims to reach 1K Gigabytes per month by 2023, which is expected to be driven by the increase in video content usage.


Monthly Average Broadband Usage Forecast (Source: Company Reports)

The company aims to connect more customers to fibre, while continuing to lift satisfaction levels. Its orders are already tracking ahead of its expectations leading into what is typically a busy seasonal connection period, with the return of university students and the completion of approximately 80,000 more premises in the second half of FY19.

Stock Recommendation: Its gross margin and EBITDA margin for H1FY19 stood at 66.5% and 65.0%, better than the industry median of 57.5% and 31.4% respectively, implying decent fundamentals of the company. Its current ratio for H1FY19 stood at 1.27x, better than the industry median of 0.93x, which implies the company is in a better position to address its short-term obligations than its peer group. It is presently trading slightly towards its 52-week higher level of $5.300 with higher PE multiple of 37.21x. Hence, we are of the view that most of the developments are priced in at the current juncture. Considering the aforesaid facts and current trading level, we have a wait and watch stance on the stock at the current market price of $5.300 per share (down 1.487% on July 17, 2019).  

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