InvoCare Limited share price down 4.8% on revised FY18 guidance

The InvoCare Limited (ASX: IVC) share price has fallen by a further 4.8% today after updating the market with guidance for the first half of its FY18 result.

InvoCare previously announced to the market that it was going to significantly invest for growth and changing preferences. It called the plan ‘Protect & Grow’, however it would mean a hit to earnings because of the costs to refurbish and a hit to sales with closed sites.

The company expects work will be done on 221 funeral locations of which, 58 will be refreshed shopfronts, 72 will be refreshed funeral homes, 34 will be enhanced funeral homes and 57 will be new growth shop fronts.

InvoCare made the distinction between these facilities because it has different projected CAGR growth rates of cases over the next five years. Refreshed shopfronts are expected to deliver a CAGR growth rate of 4.9%, refreshed funeral homes are expected to deliver a growth rate of 5.5%, enhanced funeral homes are predicted to deliver 9.4% growth and new growth shopfronts are expected to deliver growth of 28%.

If it achieves the above growth in cases then InvoCare may be able to generate a significant increase in earnings as it is also predicting case average growth to be 3% to 4% in the next five years.

InvoCare has modelled that it will increase its market share from 33% to 40% over a ten year period in the markets that it operates. It also announced it will enter the regional markets of Australia and New Zealand, which means encroaching on Propel Funeral Partners Ltd’s (ASX: PFP) market.

However, InvoCare announced that this year’s profit will be down. The first quarter’s sales were down 6% and funeral case volume was down 6.7%. This was partly driven by the reduced number of deaths compared to last year, according to InvoCare’s understanding.

Management expect that earnings before interest, tax, depreciation and amortisation will be down around 12% for the half-year and the full-year result will show a low single digit decline of earnings per share (EPS) compared to 2017.

Foolish takeaway

InvoCare is a high quality business and should be able to achieve pleasing long-term growth. However, the next year could be tough for the share price as earnings are not going the way investors expected. I’m personally interested in buying shares at the current price for an ultra-long-term hold.

Investors who are unsure on InvoCare’s short-term future would probably prefer these exciting growth shares.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

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 Scott Phillips.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now