The Propel Funeral Partners Ltd (ASX: PFP) share price is up around 5% after announcing acquisitions and a trading update.
Propel is one of the largest funeral operators in Australia and New Zealand. The major competition is InvoCare Limited (ASX: IVC).
The latest acquisitions
Propel announced it was entering Adelaide and expanding in Auckland after making acquisitions.
It is making three purchases for a total cost of up to $17.6 million. That includes $15.2 million of cash to be paid on completion.
The Adelaide exposure represents a new metropolitan area.
The first acquisition is Berry Funeral Directors, which is a fourth generation family business located in Norwood which has been supporting Adelaide families with personal, professional funeral services since 1934.
Next is Glenelg Funerals. This is a family owned business in Glenelg which has been providing funeral services for over 25 years.
Finally, there is a business called State of Grace. This is a funeral services provider which has a focus on enabling families to personally care and make specific home-based funeral arrangements for their loved ones. It operates from two locations in Auckland.
Together, those acquisitions perform around 1,200 funerals per annum. They generated revenue of approximately $9 million in the most recent financial year.
Of the five locations these businesses operate from, four are leased and Propel will be buying one freehold property which includes two chapels, a mortuary, commercial kitchen and so on. That freehold property has approximately 3,850 sqm of land in Norwood, South Australia.
Propel said that it would be essentially funding this from its expanded and extended debt facilities with Westpac Banking Corp (ASX: WBC).
Trading update and outlook
Another factor that may be influencing the Propel share price is the trading update that the company gave.
It said that death volumes are expected to revert to long-term trends after a benign period during 2020 and 2021 so far.
Propel revealed it has started FY22 with higher funeral volumes. In July 2021, it performed a record number of funerals, with total and comparable funeral volumes materially higher than the prior corresponding period. But it noted that death volumes can fluctuate over short-term horizons.
Aside from death volumes returning, Propel also pointed to acquisitions completed, announced and potential future acquisitions as drivers for growth in FY22.
The Propel share price has risen 44% over the last year – the market has noted the recovery and expected growth from here.
There are strong long-term tailwinds for the funeral industry, though I’d be cautious about buying a lot of shares at this stage, with Propel shares at an all-time high. It’s not a bad option among the ASX dividend shares though.