How well are the Funeral Care Operators Positioned in Australian Market?

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Australian Economy

With the emerging trend towards ‘celebrating the life’ as the purpose of funerals, businesses in the sector are gaining some traction lately. Thus, there has been a rise in demand for premium and simple funerals. Going back in time, the Independent Funeral Directors Association of Australia Inc. was formed in 2000 and the philosophy behind the formation of this association was simple, to represent the best interests of both family owned funeral homes and the public when dealing with changes to our industry. Till date, the members work together to ensure that the families are called to serve and receive the best possible standard of service at the most realistic and cost-efficient basis.

With the rising population and eventual death scenario, key stocks operating in the segment have come into picture. For instance, InvoCare Limited (ASX: IVC) is one such group that has been talked about when equities in funeral segment are being discussed. However, shares in this funeral home owner and operator, seem to have bottomed out to a 52-week low level (with a six month fall of 32.3% to $11.44), sitting slightly up at the time of writing to $11.48. The InvoCare share price fell sharply at the back of revised FY18 guidance as the company announced earnings could take a hit from its growth strategy plans to refurbish 221 funeral locations. But the pain may be short-lived, with InvoCare predicting earnings growth after the strategy is executed, with plans to increase its market share and enter the regional Australian and New Zealand markets.

Elsewhere in the sector, Propel Funeral Partners Ltd (ASX: PFP) has taken a front foot with many advances while the stock has been down 9.3% in last three months. Propel’s first-half results were strong with revenue lifting 84% to $38.9 million from $21.2 million and operating EBITDA up 15% on its prospectus forecast of $18.4 million to $21.1 million. While investors potentially clock the damage that could be done by InvoCare’s plans to eat into its already-established regional market, it is worth noting that PFP has upgraded its earnings guidance for FY18 and seems to have growth drivers in place to manage competition.

When talking about funeral operators, retirement groups also come into limelight to some extent. For example, Retirement village operator, Summerset Group Holdings Ltd (ASX: SNZ) has been flying at 52-week high level lately, with share price at $6.70 after a 12-month high momentum.

While it might be a tough way to get to the ‘right’ funeral director. However, all the necessary questions should be asked to help them engage at your comfort and make your decision based on their replies. The bereaved communicate their wishes during this first phone call, and sometimes also meet with the funeral director. Then the logistical exercise of planning a funeral gets underway. Different cultures and religions do, of course, mark funerals and the deaths of a loved ones in a variety of ways and look upon the operators that can serve to the best of their abilities.

Coming back to the funeral operators and evaluating them on equity scale, while investors have been boggled by the recent share price movements, we believe that there can be some stars in the long-term and Propel can be one of those based on its performance matrix.


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