InvoCare Limited (ASX:IVC) makes another acquisition, is this the right strategy?

InvoCare Limited (ASX: IVC) announced yet another acquisition this morning. The company told the market that it has entered into an unconditional sales agreement to acquire English Rose Funerals based in Adelaide. The acquisition is expected to complete in mid July 2018.

Rose Funerals operates from a single location and carries out around 140 funeral services a year, which generates revenue of $0.7 million. InvoCare is also getting a freehold property with this acquisition.

The current owners will stay with English Rose, they have 30 years of combined experience.

Martin Earp, the CEO of InvoCare, said “English Rose Funerals provides a unique brand proposition that augments our existing businesses in Adelaide (White Lady, Blackwell and Simplicity).

“We are pleased to welcome the English Rose team to InvoCare and are excited about the opportunity to leverage our shared services network in Adelaide to help support and grow a high quality business. Together, we are confident we are well positioned to build on the success of English Rose Funerals.”

Is the acquisition strategy the right one?

As InvoCare said, this is now the sixth acquisition it has announced this calendar year. It has announced:

  • English Rose with $0.7 million of revenue
  • Lester & Son with $3.5 million of revenue
  • Hope & Sons with NZ$5.8 million of revenue
  • Whitestone with NZ$1 million of revenue
  • Southern Highlands with $0.7 million of revenue
  • J A Dunn with $1 million of revenue

Combined, this is about $12 million of annualised revenue that InvoCare has added. This isn’t a huge amount for InvoCare, but it does represent 2.5% of FY17’s revenue. Considering sales increased by 1.8% in FY17, this is adds up to an important potential increase for this year and next year.

InvoCare seems to be trying to snuff out the challenge from Propel Funeral Partners Ltd (ASX: PFP) by expanding into regional areas. It isn’t stating what prices it is paying for these acquisitions. Perhaps they are doing so for the sellers’ privacy, but it could also be because the price is high.

Even if the price is high, it could still be a good strategy because many of these businesses have been operating for many decades, if not over a century. InvoCare is permanently removing the opportunities for Propel.

I think InvoCare is a good ultra-long-term buy. 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. There aren’t any other companies that can point to growth of their industry for the next 30 years. I say the above statistic a lot because I think it’s a great stat and points to the potential future organic growth.

It’s trading at 24x FY19’s estimated earnings. I’d be happy to buy a small parcel at today’s price, but I’m going to wait for the result in August before buying because the share price could fall if earnings aren’t as good as some people are expecting due to the lower death rate and refurbishments.

Until then, I think it could be a better idea to buy one of these top growth shares instead.

4 Top Growth Shares To Buy This Year

Renowned investor Scott Phillips just released a brand-new report detailing his 4 favourite stocks to buy right now.

And I don’t know about you, but I always pay attention when some of the best investors in the world give me a stock tip.

This is your chance to get in at the very beginning of what could prove to be very special investments.

Click here to get started today!

Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and Propel Funeral Partners Ltd. The Motley Fool Australia has recommended InvoCare Limited. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!