InvoCare Limited (ASX: IVC) has reported its result for the 2019 half year, is it worth buying shares?
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.
InvoCare’s HY19 Profit Comes Back From The Grave
The funeral business reported that its operating sales revenue grew by 7% to $241.5 million with death volumes (up 1.2%) returning to normal after a prior benign flu season, an improved average price per funeral (up 2.2%) and contributions made from the acquisitions completed in 2018.
InvoCare’s operating EBITDA (click here to learn what EBITDA means) grew by 16.9% to $62.8 million, partly thanks to the operating profit margin improving by 2.2% to 26%.
Operating earnings after tax fell by 5.2% to $22.3 million due to accounting standard changes, but underlying earnings after tax increased by 8.6% to $21.2 million. However reported net profit after tax (NPAT) grew by 97% to $41.4 million thanks to the performance of its funds under management for pre-paid funerals.
According to CommSec and Bloomberg, the market was expecting a net profit of $26 million, so the statutory profit beat this result but the operating profit didn’t.
As part of InvoCare’s ‘Protect & Grow’ strategy it has been busy acquiring regional businesses and renovating its existing locations to be more attractive & modern to appeal to families who wish to celebrate rather than mourn. InvoCare has renovated 96 locations so far.
The renovations have boosted customer satisfaction, InvoCare now has a net promoter score of +80.
InvoCare has also announced a new strategy, it is entering the pet cremation industry. It has launched Patch & Purr in Wollongong. Management said it was a natural expansion of the core business and will aim to provide significantly higher levels of service to pet owners and vet clinics than what’s currently offered. InvoCare also acquired an existing pet cremation business in Sydney during 2018.
InvoCare’s Board decided to maintain its first half dividend at 17.5 cents per share, the same as last year, reflecting a dividend payout ratio of 88% of operating earnings.
Is The InvoCare Share Price A Buy?
The InvoCare share price has fallen 8% in early reaction to this report, which includes the heavy market sell off across the global share market.
It’s valued at quite a high earnings multiple due to the defensive nature of funerals, but I’m not jumping to buy shares today due to that high-ish price and the uncertainty surrounding the death volumes for this winter. However, if it were to drop below $13 again I would think about it for my own portfolio due to the long term ageing demographic tailwinds.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: Jaz owns shares of InvoCare at the time of writing, but this could change at any time.