InvoCare Limited (ASX: IVC)

IVC Details

Vulnerable to market weakness: InvoCare is a leading international provider of services related to funeral, cemetery and crematoria, and is a market leader in Australia, New Zealand and Singapore with circa 25% market share of funeral markets. InvoCare, which runs 250 funeral homes and crematoriums, has $508 million in funds under management from people who have signed pre-paid funeral contracts, with about 30% of the funds directly invested in property. With the rising population, the number of deaths are expected to be up gradually and will accelerate post 2022 in view of the life expectancy scenarios, and this might become favourable for the stock thereafter.

In year 2017, the group’s existing banking syndicate’s funding lines were increased from $290 million to $350 million to meet the funding needs. Group’s Protect and Grow Plan requires an incremental capital investment of circa $200 million over four years. During 2017, IVC also sold one of its properties which was held as an investment for a price of $270 million and resulted in profits of approximately of $14 million in 2017.

Trend Analysis of Death Rate (Source: Company Reports)
 
The group has exited US market by closing its funeral operations and its cremation service business. Its objective of improving performance is by managing geographies rather than by brand and by driving its regions through more local managers. In this regard, the group has restructured operations across all regions in Australia and New Zealand. The group has prepared a plan for 2018 for future growth to achieve returns on invested capital consistent with historical levels that is 15% circa.

InvoCare has a market share of about 32% in the Australian funerals and crematorium industry and operates businesses including White Lady Funerals, Simplicity Funerals and Tobin Brothers. InvoCare's net profit for the six months ending June 30, 2017, climbed by 50.1% to $41.7 million, while revenue was up by 1.7% to $218.2 million. Over the long term, the outlook is for continued improvement in operating EBIDTA and a double digit operating EPS growth with the help of Protect and Growth Investment Plan.

Stock Performance: Looking at the trading scenario, there is not much of underlying growth to justify the valuation.In past six months, there is an increase of 17.34% in stock price (as at December 11, 2017), and some level of uncertainty now prevails given the infant nature of price comparison platforms and distribution aggregators in Australia for funeral service businesses. With the lowering of sentiments and underperformance expected in the market in short to medium term with IVC’s vulnerability to the weakness, we give a “Sell” recommendation at current market price of $16.69


IVC Daily Chart (Source: Thomson Reuters)

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