If you have room in your portfolio for a small cap ASX stock, then it could be worth considering Propel Funeral Partners Ltd (ASX: PFP).
That's the view of analysts at Bell Potter, which have just reaffirmed their buy recommendation on the stock.
It is the second largest provider of funeral, cemetery, crematoria, and related services in the ANZ market. The company has a particularly strong presence in regional areas and an emerging metropolitan presence.
Propel Funeral Partners operates under a multi-brand strategy with most of its funeral homes dating back over many decades.
What is the broker saying about this small cap ASX share?
Bell Potter notes that the company has just released its first quarter update and delivered double-digit top line growth. It said:
Propel Funeral Partners (PFP) provided a 1Q25 trading update at their AGM, revenue +16% supported by 13% growth in funerals conducted and ~3% growth in comparable average revenue per funeral (ARPF).
And while this growth is slightly behind Bell Potter's first half expectations, it notes that it was in line with consensus expectations. The broker adds:
Although the overall volume growth was tracking slightly below our 1H25 growth expectations driving a lower revenue growth than BPe, the revenue growth run-rate was broadly in line with Consensus. The ARPF growth has returned to PFP's longer term growth range of 2-4% and in line with our expectations as the high inflationary environment eases and with some impact from new acquisitions given the ongoing M&A activity. Operating EBITDA of $16.5m was at a margin of 26.8% largely in line with expectations considering ARPF outcomes.
Double-digit returns
In response to the update, the broker has retained its buy rating on the small cap ASX share with an improved price target of $6.80 (from $6.40).
Based on its current share price of $5.95, this implies potential upside of 14% for investors over the next 12 months.
In addition, Bell Potter is forecasting a 2.5% dividend yield in FY 2025, which boosts the total potential return to approximately 16.5%.
The broker concludes:
We continue to view PFP's growth as well supported by a strong underlying business with pricing power and acquisitive strategy in a large/fragmented market which is bolstered by the M&A firepower of ~4 years worth of acquisitions (BPe) at a run-rate of ~$40m executed annually (~1% market share vs current ~10% as of CY24e, BPe). We also view the freehold property portfolio valued at cost less depreciation of ~$232m as a strong hedge to the net gearing level of ~2x.
