Why the InvoCare (ASX:IVC) share price tumbled 5% lower today

The InvoCare Limited (ASX:IVC) share price was out of form on Wednesday and tumbled as much as 5% lower. Here’s why…

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The InvoCare Limited (ASX: IVC) share price was a poor performer on Wednesday.

The funerals company’s shares sank as much as 5% before ending the day almost 4% lower at $10.83.

Why did the InvoCare share price tumble lower?

Investors were selling InvoCare shares on Wednesday following the release of an announcement relating to its upcoming full year results.

According to the release, the company intends to recognise $26.5 million in pre-tax significant items in its FY 2020 financial results. This comprises $7 million worth of operating items and $19.5 million of non-operating items.

In light of this, InvoCare expects to report a disappointing net loss after tax in the range of $7 million to $12 million.

It is also worth noting that even excluding its significant items, InvoCare would still be reporting a material profit decline.

Excluding these significant items, net profit after tax is expected in the range of $14 million to $19 million. This represents a 70% to 78% decline on FY 2020’s net profit after tax of $63.8 million. Though, it is worth noting that the prior period does include a mark-to-market gain on the revaluation of undelivered prepaid contracts.

What are the significant items?

The release explains that a material portion of the significant items is linked to the softening of the funeral services sector in Australia and New Zealand.

It notes that this is being primarily driven by a range of impacts flowing from the COVID-19 pandemic.

The company commented: “Goodwill related to the New Zealand business (which represents less than 10% of Group operating EBITDA) was impaired by $24.4 million in the 2019 financial year. While some progress had been made to improve the business, the reassessment of recoverable value will result in a further $19.3 million goodwill impairment for the year ended 31 December 2020. Notwithstanding the impairment, the Group remains confident that the quality of our frontline team in New Zealand will continue to provide excellent service to our client families.”

What else?

In addition to this, it advised that some of the significant items relate to the carrying value assessments performed as part of year-end accounting procedures or are items that provide disclosure clarity to operating earnings.

This includes a $6.2 million impairment to the carrying value of certain modules of the Oracle ERP project. It advised that the replacement of certain functions rendered some elements of the IT platform obsolete.

InvoCare intends to release its full year results on 24 February.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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