The InvoCare Limited (ASX: IVC) share price has climbed 5% to $14.94 after the largest private funeral, cemetery, and cremation operator in the Asia-Pacific region announced its half-year results.
Here are key takeaways from the release:
- Total sales revenue increased 1.7% to $218.2 million.
- Operating earnings after tax up 13.5% to $24.5 million.
- Profit from ordinary activities after tax up 50.1% to $41.7 million.
- Half-year earnings per share of 38 cents.
- Interim dividend of 18.5 cents per share fully franked.
- Outlook: High single digit 2017 operating EBITDA and operating EPS growth.
Overall I felt this was a solid result from the funeral company. Though it is worth noting that the 50% increase in profit after tax was largely the result of a $17 million gain from undelivered prepaid contracts.
Taking these gains out of the equation would have meant net profit growth of approximately 9.2% over the prior corresponding period. Furthermore, it would reduce its earnings per share to 22.4 cents.
But even when normalising its result, I still feel it was a solid half. Especially considering InvoCare reported a 130 basis points decline in market share.
This decline in market share came from its Australian business which was impacted by a number of factors including its regional manager restructure, the retirement of long serving employees, changes in customer preferences, and competitive pressures in the NSW metropolitan markets, Queensland, and Western Australia.
Although management expects further market share losses this year, it remains confident that things will improve in 2018 as its Protect & Grow plan starts to take effect.
Should you invest?
Based on today's result InvoCare's shares are changing hands at 22x trailing earnings. Whilst this is a premium over the market average, I believe its defensive characteristics and generous dividend go some way to justifying this.
Whilst I would ideally prefer to buy in at a cheaper price, I still see a lot of value in its shares for long-term buy and hold investors. This could make it worth considering today, in my opinion.
