The InvoCare Limited (ASX: IVC) share price rose by 12% today after announcing its 2018 financial results.
InvoCare is the largest provider of funeral services in Australia, New Zealand and Singapore. It operates at 290 funeral locations. It is also the largest operator of private cemeteries and crematoria in Australia. The name stores for innovation, vocation and care. Some of its national brands includes White Lady Funerals, Simplicity Funerals and Value Cremations.
What InvoCare reported in FY18
InvoCare said that its operating sales revenue grew by 1.4% to $477.3 million, operating EBITDA declined by 4.3% to $119 million (click here to learn what EBITDA means) and operating earnings after tax declined by 22.1% to $49.5 million.
The funeral company said that number of deaths in Australia declined by 3.1% in the 2018 calendar year, however its revenue increased due to the acquisitions that it made during the year.
Operating earnings declined compared to the prior corresponding year because of the depreciation and interest stemming from ‘Protect & Grow’ and acquisitions.
Protect and Grow is InvoCare’s strategy to refurbish a large number of locations. The results from 49 renovated locations, with an average of 10.8 months of trading, indicate the EBITDA increase over a ‘do nothing’ scenario is “exceeding modelled assumptions”.
The acquisitions that InvoCare has made, 11 businesses, in Australia and New Zealand adds 3,500 funeral cases, 1,200 cremation cases and around $26 million in revenue per year.
InvoCare’s net profit after tax plunged 57.7% to $41.2 million due to the impact of a significant gain it made in 2017 from property revaluations and a sale.
InvoCare Dividend
InvoCare’s full year dividend was reduced by 19.6% to 37 cents per share, representing a payout ratio of 82%.
InvoCare Management Comments
InvoCare CEO Martin Earp said: “Operating results for 2018 were impacted by soft market conditions, namely, a lower number of deaths. History suggests that these conditions are unlikely to be sustained and that reversion to the positive long-term trend is typical.”
Is InvoCare a buy?
Investors certainly seemed to think so. InvoCare revealed that in the fourth quarter of 2018 and in January 2018 it seems to be pointing towards the market normalising.
InvoCare thinks the investments will deliver sustainable double digit profit growth and in 15 years time there could be 50% more deaths per year due to Australia’s ageing population.
The worst may be over for InvoCare, but the ASX shares in the free report below could grow much faster than InvoCare and therefore may be better choices for a portfolio.
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Disclosure: At the time of publishing Jaz owns shares of Invocare, but that could change at any time.
