Propel Funeral Partners Limited (ASX: PFP) is the second largest provider of death care services in Australia and Zealand. The Company owns funeral homes, cemeteries, crematoria and related assets in Queensland, New South Wales, Victoria, Tasmania, South Australia, Western Australia and New Zealand. PFP’s services and products across the death care range can be tailored or personalised as per religious or ethnic preference. The Company operates 46 freehold and 34 leasehold locations, including 19 crematoria and 5 cemeteries.

Recently, PFP announced that it has executed a sale agreement to acquire the funeral business, assets and certain freehold properties from Brindley Group Pty and its associated entities. It is expected that the acquisition will be completed by 31 March 2018 once it complies to the customary conditions, which are related to the matters such as consents to the assignment of the key contracts and also subject to the due diligence. Particularly, Propel will acquire 4 freehold properties and will lease 15 properties and it also carries the options to acquire 4 of those leasehold properties during the next 3 financial years. The proposed acquisition is expected to be growing Propel’s earnings in first year and the transaction will be funded from its cash reserves and the total purchase price payable on completion of the proposed acquisition will be $15.38 million. The group is expected to drive further industry consolidation given strong fundamentals including its cash position. In FY17, pro forma operating cash flow of $12.2 million was noted to be strong.
 

Revenue Mix (Source: Company Reports)
 
PFP has lately executed its Call Option Deeds pursuant to which its subsidiaries Bidco has an option to acquire approximately 19.9% of the issued share capital of Norwood Park Limited, which is a public unlisted company and has more than 50 shareholders. Particularly, the acquisition of shares in Norwood Park will enable Propel to explore opportunities in metropolitan Canberra, metropolitan Brisbane and regional New South Wales.

Overall, the group has expanded its operations in Australia and New Zealand by acquiring 100% of its issued capital of Latrobe Valley Funeral Services and Davis Services Group Limited. It also acquired funeral businesses, assets and freehold properties of FW Barnes & Son Funerals, Michael Hutchison Funeral and of others. The group will continue to focus on managing its existing investments and will complete its new acquisitions and investments in the death care industry in Australia and New Zealand.
 
 

Financial Summary (Source: Company Reports)
 
Industry Super Holdings Pty Ltd also became a substantial holder of Propel Funeral Partners Limited by holding 9,259,259 shares with 9.43% voting power. Meanwhile, ASX had granted waiver to PFP from Listing Rules including 4.7B and 4.10.19 which make PFP free from providing quarterly cash flow reports for the first eight quarters. This is subject to a condition that PFP will confirm ASX that it has spent $81.2 million of cash which was raised under its prospects in a manner consistent with the information set out in section 8.1.1 of the Prospectus. PFP has already confirmed the same by disclosing the allocation of $81.2 million under which $19.6 million have been allocated towards payment of cash proceeds to the existing shareholders, $55.2 million towards repayment of the debt and $6.4 million towards the payment of the costs of the Offer.
 
Based on past performance trends, Propel has forecasted a total revenue of $73.7 million in 2017-18 (about 60% growth) and a net profit after tax of $10.4 million on a pro-forma basis. Propel is forecasting pro forma FY18 operating EBITDA growth of 49.5% to $18.4 million based on growth prospects. The group also plans to expand its market share of 4.1% in Australia and 6.7% market share in New Zealand given the increasing ageing population and barriers to entry for competitors. However, the group’s gross profit margin will reduce from 69.6% to 68.2% owing to impact from FY17 acquisitions and acquisition of Seasons Funerals in FY18. Nonetheless, the group expects to declare dividends post FY18 results based on continued growth. Looking at the overall scenario, the stock looks to be a speculative one at the current market price of $3.49

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