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Is this the best small cap on the ASX?

Propel Funeral Partners Ltd (ASX: PFP) is a fairly newly listed company, but it’s already the second largest funeral operator in Australia and New Zealand.

Today, the company announced that it has executed a conditional sale agreement to acquire the funeral business, crematorium and memorial gardens of Newhaven Funerals Pty Ltd in North Queensland for around $4.1 million.

Propel said that Newhaven North Queensland operates from two locations in Mackay and Cannonvale and it conducts approximately 200 funerals and over 300 cremations per annum. In FY17 it generated revenue of around $1.75 million.

When Propel acquires the Mackay location, it will get an eight acre property which comes with a crematorium, chapel and memorial gardens. However, the company will lease the Cannonvale property.

Propel will pay a licence fee to use the Newhaven Funerals brand as the seller will continue to operate in South East Queensland.

Assuming all of the conditions are met and the contract goes through, the acquisition is expected to complete in the first quarter of FY19.

The Managing Director of Propel, Albin Kurti, said “This is Propel’s fourth acquisition announcement in FY18 and the third since the IPO in November last year. Propel currently has no operations in Mackay, the Whitsundays or their surrounding areas, so the proposed acquisition will expand out geographic footprint in Queensland.”

Foolish takeaway

The acquisition strategy could work very well for Propel because death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

If Propel can follow in the footsteps of InvoCare Limited (ASX: IVC) then it could be a materially bigger company in five years’ time compared to today.

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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 Scott Phillips.

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