The InvoCare Limited (ASX: IVC) share price has rallied almost 10% in the past week. After trading at $11.14 last Friday, the InvoCare share price has hit $12.25 at the time of writing, a pretty healthy jump for just one week.
InvoCare is the largest funeral provider in Australia, and a market leader in New Zealand and Singapore, operating 290 funeral locations and 16 cemeteries and crematoria around the world. The company employs over 1,800 people and has a turnover of around $400 million a year. The funeral market is a highly decentralised industry, but InvoCare has managed to establish a significant market share using strong and multilayered branding power. Some of its brands include White Lady Funerals, Simplicity Funerals and Whitestone Funerals in New Zealand, which many people will be familiar with.
The foundation of InvoCare’s profitability is death rates. Much of the negative movement of InvoCare’s share price in 2018 revolved around the lower than expected number of deaths in Australia, which undershot the company’s expectations and resulted in lower profits. This will most likely prove a temporary dip, as InvoCare expects death rates to increase at a rate of almost 3% annually by 2034.
InvoCare currently has a market share of over 32% in metropolitan areas but just 5% in regional areas. InvoCare has been investing heavily in expanding its portfolio of brands through a string of acquisitions in recent years (an additional 15 ‘growth sites’ in 2018 alone). This has been concentrated toward entering and expanding into regional areas, which are traditionally the most fragmented markets.
The positive movements this week for InvoCare’s share price could be attributed to value investors seeking a bargain, as the market volatility of the past few months subsides. InvoCare’s 13.87 P/E ratio is significantly below the market average of around 15 and investors are piling back in.
As they say, there are only two certainties in this life and death is one of them. InvoCare is a company servicing a remarkably inelastic demand which, I believe, makes it a fantastic investment for long-term buyers (if you can get past the stigma).
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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.