InvoCare Limited

Regional Acquisitions Contribute Towards Growth: InvoCare Limited (ASX: IVC) is a leading provider of services in the funeral industry in Australia, Singapore and New Zealand. The company declared an interim dividend of 17.5 cents per share, representing a pay-out ratio of 88%. The dividend will be paid on 04 October 2019.

Key Highlights of 1HFY19 Results: During the half year ended 30 June 2019, operating sales revenue was reported at $241.5 million, increasing 7.0% on prior corresponding period revenue of $225.7 million. Operating EBITDA for the period was reported at $62.8 million, up 16.9% on prior corresponding value of $53.7 million. Operating margin went up by 220 basis points, from 23.8% in 2018 to 26.0% in 2019. Underlying earnings per tax were reported at $21.2 million, up 8.6% on prior corresponding period earnings of $19.5 million. Net profit after tax for the period stood at $41.4 million, up 97% on prior corresponding period NPAT of $20.8 million.

Operating sales revenue for the period grew as a result of normalising volumes, improved case average and contributions from acquisitions done in 2018. Due to adoption of AASB 16 Leases, there was a reduction in occupancy and facilities costs which led to an increase in operating margin. NPAT increased substantially on the back of over-performance of funds under management for pre-paid funerals. However, operating earnings during the period were negatively impacted due to changes in accounting standard.

Performance in Australia: In Australian InvoCare markets, number of deaths during the half increased by 1.9% on prior corresponding period. As a result of disciplined expense management, strong case average growth and a normalised volume market, EBITDA performance in Australia grew at 7.7%. Acquisitions in Australia provided additional 994 cases & approximately $1.7 million in EBITDA, resulting in underlying EBITDA growth of 13.2% for Australian Funerals. With respect to Australian Memorial Parks, the company continued to make significant investment on developing product and park facilities.


Performance – Australia (Source: Company Reports)

Performance in New Zealand: In New Zealand, the company reported 25.2% increase in Case volume from 2,766 in 1HFY18 to 3,463 in 1HFY19. Gross Sales in New Zealand were reported at $29.2 million, up 21.7% in comparison to prior corresponding period sales of $24.0 million. Underlying EBITDA amounted to $4.9 million, up 10.7% on prior corresponding period EBITDA of $4.4 million.


Performance – New Zealand (Source: Company Reports)

Performance in Singapore: Number of deaths in Singapore increase by 0.5% on prior corresponding period. The company opened its main funeral location in May 2018 that was closed since October 2017, which impacted the year on year performance in 1HFY19. Case volume in 1HFY19 was reported at 783, up 22.0% in comparison to 642 in prior corresponding period. Sales in Singapore were reported at $9.5 million, up 41.4% in comparison to $6.7 million in prior corresponding period. Underlying EBITDA amounted to $4.6 million, up 117.5% on prior corresponding period EBITDA of $2.1 million.



Performance – Singapore (Source: Company Reports)

Stock Performance: The stock of the company generated YTD returns of 40.27% and has a market capitalisation of $1.68 billion. Currently, the stock is trading towards its 52 weeks high level of $16.770. Acquisitions by the company have been in the limelight with over 4,000 funeral cases added since January 2018. Over the said period, acquisitions contributed approximately $27 million of revenue per annum. In addition, there exists a strong and active pipeline of acquisitions opportunities for future expansion. During the six months ended 30 June 2019, the company completed renovation of 41% or 96 locations of its total portfolio, at a cost of $114 million. By the end of 2019, the company is expecting to complete approximately 50% of the renovation. In addition, the company has two more operational centres which are due to be completed by the end of 2019. Given the backdrop of the above factors and decent price movement, we have a watch stance on the stock at a current market price of $14.700, (up 2.439% on 27 August 2019) and suggest that investors should wait for further catalyst that may drive the stock.   

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