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Is the Propel Funeral Partners Ltd (ASX:PFP) share price a buy?

The Propel Funeral Partners Ltd (ASX: PFP) share price could be one to watch this morning after it announced another acquisition.

Propel Funeral Partners, as the name suggests, is a funeral provider. It is the second largest one in Australia and New Zealand behind InvoCare Limited (ASX: IVC).

The acquisition

It’s going to buy up to 100% of Manning Great Lakes Memorial Gardens (MGLMG) for up to $4.4 million.

It operates from a single freehold location and conducts an average of 700 cremations and burials per year.

It owns and operates a crematorium, a chapel, memorial gardens and a lawn cemetery from a 15-hectare property in Pampoolah, New South Wales.

MGLMG has been providing cremation and burial services to the region since 1997 and generates revenue of around $1.2 million.

The acquisition will be funded by Propel from existing cash and management believe it will accretive to earnings in year one.

Is Propel a buy?

Before today it was trading at 19x FY19’s estimated earnings with a grossed-up dividend yield of 3.5%.

Like its larger peer, Propel is exposed to an ultra-long-term tailwind. 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.

However, in the shorter-term Propel can accelerate its earnings with carefully-selected acquisitions like the one announced today.

Rising interest rates may reduce the attractiveness of ultra-defensive shares like Propel in the next year or two, but it could become one of Australia’s blue chips in a decade from now due to the ageing tailwinds as long as competition doesn’t hurt funeral prices.

If I didn’t already own some shares I’d happily buy a few at this reduced level.

However, for now I’m focusing on truly undervalued growth shares like one of these top shares.

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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.

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