The InvoCare Limited (ASX: IVC) acquisition train rolls on again today.
This morning InvoCare announced the conditional acquisition of Harrison Funerals in Ballarat, Victoria. Management believe the acquisition will be settled by the end of September 2018.
According to InvoCare, Harrison Funerals operates from one location in Ballarat. It carries out approximately 150 funerals per year and generates revenue of around $1 million per annum. The acquisition includes a fully equipped funeral home with a chapel and mortuary, freehold properties and prepaid contracts.
It has been operating since 2005 and is a growing business according to InvoCare.
This continues InvoCare’s strategy of expanding into regional markets through acquisitions.
The CEO and Managing Director of InvoCare, Martin Earp, said “Harrison Funerals provides InvoCare with a strategic opportunity to enhance our business and continue the growth of our regional strategy in the Central Highlands of Victoria.
“We are excited that Brian Harrison, General Manager, has selected InvoCare to deliver on the next phase of growth for the business and will remain with Harrison Funerals under InvoCare ownership to continue delivering exceptional services to families.”
Since March, InvoCare will have acquired $10.3 million of Australian-based funeral providers and NZ$12 million of New Zealand based operators. This acquisition makes it $11.3 million in Australia.
Some people may question whether this is the right strategy for InvoCare considering it is already spending significant sums of money on refurbishing its locations. The acquisition price will probably be quite high considering we aren’t being told of the price. As long as debt doesn’t get too high it should be okay.
However, InvoCare has shown since listing that it can integrate its acquisitions well whilst growing organically. It remains an attractive growth share in my opinion with 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.
It’s currently trading at close to 21x FY19’s estimated earnings with a grossed-up dividend yield of 5.3%. I’d be happy to buy a parcel of shares at the current price as it’s quite possible it could trade more expensively in the future.
However, one thing I’m keeping my eye on is price competition with competitors like Propel Funeral Partners Ltd (ASX: PFP). I hope the profit margin of InvoCare keeps growing over the long-term.
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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.