Death waits for no one. It's a fact of life and no matter how much you try evade it, you simply cannot avoid the 'light at the end of the tunnel'. However, that's not to say you cannot profit from it today with InvoCare Limited (ASX: IVC).
The company
InvoCare is Australia's only listed funeral services provider. Whilst the name may be unfamiliar to most, anyone who has endured the death of a beloved has probably been to a funeral home in the InvoCare network.
The company operates 238 funeral homes throughout Australia and New Zealand under the trading names of White Lady Funerals, Tobin Brothers and Le Pine (amongst others). It has a large domestic footprint enabling it to command 31% of the funeral services market.
The thematic
Australia faces a demographic imperative because of its ageing population, leaving InvoCare poised to take advantage of two key themes; population growth and death.
Australia's population is set to double by 2050 with mortality rates steadily increasing over this time. Despite advancements in medicine and health care, death is inevitable and InvoCare's market-leading position should allow it to capitalise over (the demise of) others.
With global population also increasing daily, InvoCare's natural progression is offshore expansion. The company has already established a network in Singapore and is looking to expand further into the U.S, making it akin to a defensive stock with promising growth qualities.
The fundamentals
In its most recent results, InvoCare announced a 13% increase to underlying earnings, broadly on the back of more deaths. Earnings were up in all divisions with sales growing 6.1% across the group. InvoCare's full year profits were dragged down due to acquisition costs, however its strong cash generation indicates these are temporary side-effects from pursuing growth.
Recent market volatility has used the results to punish InvoCare's shares indiscriminately, placing the company on a trailing price-to-earnings (PE) of 23. This compares to a historical average PE of about 30, indicating InvoCare is relatively cheap. Given the projected growth in population (and thus, death rates), I believe InvoCare is below fair value, making it a compelling buy at today's prices.
Foolish takeaway
InvoCare operates in a niche industry which no one can escape from. With all signs pointing to increased demand for its services, InvoCare is one stock which, I believe, deserves a place in everyone's portfolio at today's prices.
