The Propel Funeral Partners Ltd (ASX: PFP) share price could be one to watch this morning after it announced some more acquisitions to the market.
The second largest Australian funeral operator has acquired four businesses in New Zealand which also include assets and freehold properties. It has acquired: Dils Funeral Services, Schnapper Rock Cremations, Rowley Funeral Services and Martin Williams Funeral Directors.
These businesses together conduct approximately 800 funerals per annum in the North Shore area of Auckland, generating NZ$7.2 million of revenue in the last financial year.
The total purchase price will be NZ$17.1 million in cash and around 1.21 million shares issued at $2.64 each which will be subject to escrow for up to three years. Propel may also pay NZ$1.25 million if certain financial milestones are achieved during the three years after the acquisition.
The Managing Director of Propel, Albin Kurti, said "New Zealand is a core market for Propel. The acquisitions announced today will expand our footprint in metropolitan Auckland, particularly on the North Shore where we don't currently have a presence, and are expected to increase Propel's annual revenue by approximately 7%."
This is quite a sizeable deal for Propel, but it does seem expensive. The existing cash reserves and currently unused $50 million debt facility will be used to fund the acquisitions. However, management said it will earnings accretive in year one.
As long as Propel maintains a conservative balance sheet then these types of acquisitions should be useful for its long-term profit growth.
Foolish takeaway
The main reason why I'm attracted to Propel for the long-term is that 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. This doesn't suggest rapid growth, but Propel could be a steady grower for many years to come alongside InvoCare Limited (ASX: IVC).
Before this acquisition it was trading at under 19x FY19's estimated earnings with a trailing grossed-up dividend yield of 3.6%. I'd be happy to buy a parcel at today's prices. But, I can understand if the valuation or the morbid sector doesn't attract every investor.
