Propel Funeral Partners Ltd expands its footprint

Propel Funeral Partners Ltd (ASX: PFP) is the second largest funeral provider in Australia with a market share of around 4.1% in Australia and 6.7% in New Zealand, second only to InvoCare Limited (ASX: IVC).

The business recently announced that it will be purchasing Brindley Group Pty Ltd and associated entities for $15.38 million. The Brindley Group conducts around 1,350 funerals each year, which is expected to increase Propel’s annual funeral volumes by around 13%.

In FY17 the Brindley Group made approximately $11 million of revenue and will add to Propel’s earnings in the first year.

Today, Propel has announced another investment in the funeral market.

Management announced it has executed a call option deed where one its subsidiaries has an option to acquire roughly 19.9% of the shares of Norwood Park Limited, which is a public unlisted company and has more than 50 shareholders.

When the call options are exercised the amount payable will be approximately $2.7 million. The exercising of the options is conditional upon Propel’s subsidiary making a takeover offer for the shares in Norwood Park.

According to the release, Norwood Park was established in 1964 and performs approximately 2,000 cremations and 300 burials. In FY17 Norwood Park generated revenue of approximately $4.8 million.

Albin Kurti, Propel’s Managing Director, said “We are pleased to have secured this option for Propel. The acquisition of shares in Norwood Park will enable Propel to enter metropolitan Canberra, expand its presence in metropolitan Brisbane and in regional New South Wales.”

Foolish takeaway

I think Propel has a very good long-term future, which is why I’m a shareholder. It can generate long-term organic growth thanks to the tailwinds of Australia’s ageing population and can make acquisitions such as Brindley Group and Norwood Park to rapidly grow its market share. The one thing I’m wary of is that it’s trading at a fairly high price/earnings ratio.

If you're not dead certain about Propel, I'm confident that these shares will easily beat the market over the next few years.

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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and Propel Funeral Partners Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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