The ASX reporting season was wrapped up over a month ago. Trawling through mountains of financial statements, one ASX All Ords share caught my eye the most during the reporting period.
Shortly after reading the full-year results of a particular company, I logged into my brokerage account and increased my holding.
To be clear, this was not an investment decision based on a single set of numbers. The increased stake was due to the continued demonstration of a quality business, like the many years that have come before it.
So, here's a look into how this little ASX All Ords share earned a greater allocation of my wealth in August.
Why I invested more money in this ASX All Ords share
On 24 August, Propel Funeral Partners Ltd (ASX: PFP) released its latest full-year figures to investors. To my surprise, shares in the Australian and New Zealand death care services provider traded sideways following the announcement.
It seemed odd to me that investors were content passing on Propel Funeral Partners at a price-to-earnings (P/E) ratio of 26 times amid the result.
This multiple may seem rich compared to the 18 times the S&P/ASX 200 Index (ASX: XJO) trades. However, I believe it undervalues the growth potential available to Propel, and the exceptional quality of the business.
Here are a few of the metrics that I found impressive in the FY23 full-year result:
- Revenue up 16% on the prior year to $168.5 million
- Funeral volumes up 9% on the prior year to 18,029
- Average revenue per funeral up 6% to $6,398
- Net profit after tax (NPAT) up 18.5% to $19 million
Growth remains robust as Propel proceeds with consolidating the funeral industry. What is most impressive is the company is maintaining net margins above 10% while acquiring and integrating several funeral businesses at a time.
The funeral industry is not as glamorous as retail or tech. However, this ASX All Ords share continues to prove it is able to acquire businesses at reasonable prices and make a good profit. Yet, the share price is down 9.6% over the past year, as shown below.
Peter Lynch, the legendary investor who averaged 29.2% per annum between 1977 and 1990, once said, "When even the analysts are bored, it's time to start buying." The reception following Propel's results was deathly quiet despite another upstanding report.
All in all, my thesis remained intact. The company was arguably in an even better state than I initially invested. Yet, the market was willing to sell part of it at a lower price… I'll take that deal every day of the week.
Time is the secret ingredient
When I look at Propel, I see a boring business in an industry that is unlikely to be disrupted. To some, that may sound like an exceptionally unappealing investment. Yet, that is precisely what I'm looking for to take advantage of 'time arbitrage'.
The market tends to look at the market through a short-term lens. For that reason, rarely will the longevity of a business be factored into the equation. As a result, valuations are often assessed on time scales of five years or less.
What if a company can compound for 20 years, 30 years, or 50 years?
The more future cash flows generated over the life of the investment, the higher an earnings multiple that can be paid and still outperform the market.
I believe this ASX All Ords share could be compounding for decades to come. The vast market yet to be consolidated, the potential for an oligopoly to develop alongside InvoCare Limited (ASX: IVC), and the everlasting demand for funeral services make Propel an attractive business to own in the long run.
