Invocare (ASX: IVC) itself may not be a household name, but it operates funeral homes under two well-known brand names, White Lady and Simplicity Funerals, throughout Australia and New Zealand, as well as managing cemeteries and crematoria around the two countries and Singapore.
It is not the kind of industry that many investors think about when looking for a strong, stable earner, yet since its 2003 listing, its share price has risen from $2 to as much as $12 steadily — 19.6% average annual compounded growth. The growth story even becomes greater as Australia's aging population proportion increases as the baby boomers are entering retirement age more and more.
In its half-year report, revenue increased by 5.1% to $183.6 million, yet operating costs rose by 7.6%. Net profit after tax was $21.45 million after a reversal of impairment loss of $2.1 million. The 11.6% net profit margin is in pace with its long-run average.
The company explains that its revenue growth follows the average death rate, yet each year there can be a +/- 4% fluctuation to the trend line. This year was slightly down in numbers due to the flu season not being as severe as the average.
The company continues its strategy of increasing market share by buying out other funeral home businesses in an industry dominated by small or family-owned competitors. Since 2012 Invocare made two acquisitions. When the combination of rising expenses and a lower death rate happens, smaller companies become less profitable, and Invocare can make acquisitions at a discount.
Due to the increasing size of the company and the long-term projected growth in business, this year Invocare's administration expenses rose by increasing staff numbers. Their digital business development has produced websites that assist customers to view funeral and memorial options, which also acts as advertisement along with its print, TV and billboard promotions.
Approximately 90% of its business is in Australia, with New Zealand and Singapore making up 8% and 3% respectively. According to the company, it plans to expand its presence, and is reported to be in discussions with a number of small-sized vendors.
Foolish takeaway
This company is a classic investment-grade business growing under the radar, and a prize for a value investor when they can identify them early on. Like a strong, steady dividend, it brings stability to your portfolio.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
