There seems to be no stopping InvoCare Limited’s (ASX: IVC) acquisition streak at the moment. Australia and New Zealand’s leading funeral business announced another acquisition to the market this morning.
According to the ASX release, it is acquiring Hasting District Funeral & Cremation Service, which is located in Port Macquarie, New South Wales. The acquisition is expected to settle by the end of this month.
Hastings Funerals was established in 1930 and is now the largest operator in Port Macquarie. It operates from three locations and carries out around 400 funeral services, generating revenue of approximately $2.7 million a year.
As part of the purchase InvoCare will get a fully equipped funeral home with a chapel, a funeral home, a private cremation facility, prepaid contracts and motor vehicles.
The CEO of InvoCare, Martin Earp, said “The acquisition of Hastings Funerals represents an opportunity for InvoCare to secure a presence in Port Macquarie, NSW which is a key element of our NSW mid-north coast strategy. We are delighted that Brian Hutchison and his team are joining the InvoCare family, which bring with them in excess of 100 years combined funeral industry experience.”
Since March, InvoCare will have acquired $11.3 million revenue of Australian-based funeral providers and NZ$12 million revenue of New Zealand based operators. This acquisition makes it $14 million revenue 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 5.2%. 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.