The Motley Fool

Why this is one of my favourite ASX small caps

Propel Funeral Partners Ltd (ASX: PFP) is one of my favourite ASX small caps, it’s the second largest funeral operator in Australia.

It sounds like quite a morbid idea. It is morbid. But, as the saying goes, there’s only two things certain in life – death and taxes, and you can’t exactly invest in the ATO.

I love a good stat. ‘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 is a very sad, but very powerful, tailwind due to the ageing population of Australia.

Propel is adding further potential earnings firepower by making acquisitions, such as the one it announced this morning.

The funeral business is acquiring Gregson & Weight and three properties on the Sunshine Coast in Queensland. The Gregson and Weight families have been involved in funerals since 1897, but Gregson & Weight was established in 1972. It now has 40 staff and is the largest provider on the Sunshine Coast with around 1,650 funerals per annum from four locations.

In FY19 it generated revenue of around $12 million and will increase Propel’s annualised revenue by around 11%. The purchase price is $36 million in cash, which will be funded by Propel’s recently expanded debt facilities.

John and Jeanette Gregson, on behalf of the Gregson family, said “We have spent a lot of time considering who we could best trust to build on the success and reputation our family and staff have worked so hard to create over the years. We have been monitoring Propel’s progress and have been impressed with what they have achieved both here in Australia and in New Zealand, and their ‘business as usual’ approach appeals to us, as it has done with other industry leaders.

Foolish takeaway

It sounds like the Gregsons were courting more than one offer from their business. Perhaps InvoCare Limited (ASX: IVC) was in the picture?

Propel is indeed making good progress with its growth strategy. This acquisition will help boost the bottom line, as long as it doesn’t take on too much debt for the business to manage.

It’s trading at 22x FY20’s estimated earnings, which isn’t a bad price for a business with such a long growth runway in this lower interest rate environment. 

But I can understand why investors would rather go for a different share, like these top stocks which could be better for growth and income.

Best 3 ASX Shares For Dividends In 2020

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. Each of these three companies boasts fully franked yields and could be a great fit for your diversified portfolio. You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and Propel Funeral Partners Ltd. The Motley Fool Australia has recommended InvoCare Limited and Propel Funeral Partners Ltd. 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.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.