Reporting Season

Invocare posts Lazarus-like return to profit: Pay-now-die-later/pets core growth drivers

Mon 28 Feb 22, 5:07pm (AEST)
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Key Points

  • funeral case volume up 2.2%
  • Significant profit gain of a net $44.1m from FUM
  • Filling 50 full-time positions remains challenging

Invocare (ASX: IVC) was up 4.12% an hour out from the close after posting a FY21 return to profitability, with net profit after tax (NPAT) of $80.2m for the year ended December 31, compared with a loss of -$11.5m a year earlier, while earnings were up 36% to $77.8m.

Underpinning the funeral company’s 11% increase in revenue to $532.5m and a 51% increase in operating earnings per share to 31.6 cents was a recovery in key value drivers and a robust improvement in the mark-to-market valuation of Prepaid Funds Under Management.

Today’s financials in a nutshell

  • Cashflow conversion of 105%

  • Operating earnings (EBIT) up 36% to $77.8m

  • Return on capital employed (ROCE) of 11.2%, up 2 points on the PCP and leverage ratio of 1.2x

  • Final fully franked dividend of 11.5 cents per share, taking the Full Year dividends to 21.0 cents per share

Send off for pets

Management flagged pet cremations as the fastest-growing segment in the business with a growing number of Australians wanting to “humanise” their pets by retaining their ashes, as opposed to disposing of a cat or dog with a shovel.

Management also noted that pets are increasingly seen as members of the family with most (80%) of requests for a pet cremation now coming via vets.

In 2021 the group undertook 87,440 pet cremations at an average price of $338.

The group is looking to make more acquisitions in pet cremations to fill out geographical gaps it doesn’t currently reach.

Growth across the business

However, when it came to two legged burials, the group saw recovery in the key value drivers of funeral case average (up 3.8%) and funeral case volume (up 2.2%) and the continued growth in memorialisation sales in the Australian Cemeteries & Crematoria business (up 9.7%).

Commenting on the result today, InvoCare CEO Olivier Chretien notes the group has successfully navigated another covid-disrupted year.

“Despite these challenges… we have delivered growth, returned the business to positive operating leverage, maintained our strong balance sheet and cash conversion and embarked on a bold change agenda,” said Chretien.

Despite lockdowns, brands such as White Lady Funerals and Simplicity Funerals, a key part of InvoCare’s core business also made solid headway in calendar 2021.

Pay now die later

InvoCare also experienced a significant profit gain of a net $44.1m from the funds under management (FUM) due to prepaid funeral contracts.

Much of this can be attributed to robust share market gains and rising property markets.

Once the company takes into account the cost of funerals it will eventually provide for those who have chosen to prepay, management notes it now has “headroom” of $109m in those FUM.

While high staff absenteeism experienced during covid have returned to near normal, management noted the bigger issue is filling 50 full-time positions for frontline staff, IT people and other areas.

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Invocare's share price was up 4.53% at the close today.

What brokers think

Consensus on InvoCare is Hold.

Based on the brokers who cover the stock (as reported on by FN Arena) InvoCare is trading at -10.5% downside to the current price.

Based on Morningstar’s numbers, InvoCare is trading around fair value.

Ord Minnett expects stricter legislation in NSW, Qld and Victoria to benefit larger and more regulatory responsible companies in the medium-term. The Hold rating and target price of $12.00 are retained. (11/01/22).

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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