The ASX defensive share Propel Funeral Partners Ltd (ASX: PFP) has suffered a 24% decline this year, as the chart below shows. It could be a contrarian idea for investors to consider, and Macquarie has given a view on whether the funeral business is a compelling buy or not.
Macquarie describes Propel as the second largest provider of death care services in Australia and New Zealand. It owns and operates funeral homes, cemeteries, and crematoria. Propel aims to be an attractive succession planning solution for independent vendors, and the broker says it has a track record of successful acquisitions.
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Is the ASX defensive share an attractive long-term opportunity?
Macquarie noted that Propel has guided its FY25 volumes to be between 22,300 to 22,700, representing year-over-year growth of 3.9% at the mid-point of that guidance.
Volume contributions from recent acquisitions are expected to support growth for the ASX defensive share. Organic volume guidance is for a 1.25% to 2.75% contraction in FY25 because of an organic volume decline in the second half of between 3.5% and 5.5%, compared to 1% growth in the first half.
Macquarie noted that those volume numbers are broadly in line with current industry data and that short-term death volumes are "highly volatile", though it expects the contraction to be temporary. Long-term volume fundamentals "remain attractive", with Australia and New Zealand entering a period of expected "peak death growth rates".
The broker also noted that Propel's operating profit (UEBITDA) guidance of $54 million to $56 million represents a margin of between 24.5% and 24.9%, which was slightly below its expected range of 25% to 27%.
Macquarie pointed out that in FY25, Propel only made acquisitions totalling around $13 million, compared to $97 million in FY24 (a record year). However, the broker said Propel's pipeline remains "healthy" and it is well-capitalised, with around $140 million in capacity to take advantage of opportunities as they arise.
The investment bank believes Propel should continue to be a preferred acquirer because of its scale, decentralised operating model, and lack of competition issues (Propel's market share is around 10% compared to InvoCare's share of more than 20%).
Propel share price target
Let's see how much upside the broker is forecasting for the ASX defensive share. A price target is where analysts think the share price will be in 12 months from the time of the investment call.
Macquarie currently has an outperform rating and a price target of $5.66 on Propel. That implies a possible rise of around 27% from its current share price.
The broker said the recent sell-off has been aggressive, yet the long-term fundamentals are still attractive, with acquisitions still representing "material earnings upside".
According to the forecasts from Macquarie, the Propel share price is valued at 24x FY26's estimated earnings.
