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InvoCare Ltd

Team Veye | 31 Dec 2020 ASX - IVC
InvoCare Ltd
Call Buy
Asx IVC

InvoCare Ltd (ASX: IVC) is an Australia-based company that provides funeral, cemetery, crematoria and related services. The Company operates across Australia, New Zealand and Singapore. It operates national funeral brands in Australia: White Lady Funerals, Simplicity Funerals and Value Cremations. Its brands in New Zealand include Beth Shan Funerals, H Morris Funeral Services, Resthaven Funerals and Academy Funeral Services. Its brands in Singapore include Singapore Casket Company and Simplicity Casket. It operates various cemeteries and crematoria in New South Wales, such as Castlebrook Memorial Park, Lakeside Memorial Park and Newcastle Memorial Park. Its cemeteries and crematoria in Queensland include Albany Creek Memorial Park, Great Southern Memorial Park and Toowoomba Garden of Remembrance. Guardian Plan is its prepaid funeral plan and LifeArt brand offers coffins (Profile source: Reuters)

From the Company Reports

InvoCare acquires two pet cremation businesses; creates leading national pet end of life network InvoCare Limited (ASX: IVC) on 11 November 2020 announced that it had entered into conditional sales agreements to acquire 100% of the shares of Family Pet Care Pty Limited and the business and assets of Pets in Peace. The completion of the two acquisitions will provide InvoCare a national footprint and position it as the market leader in pet cremation and pet after life services in Australia. Both acquisitions are expected to complete by the end of November 2020.

https://www.tradingview.com/x/Fiq5auuK/

(Chart source: TradingView)

(Chart source: TradingView)

Highlights

  • InvoCare has acquired Family Pet Care Pty Limited which has a presence in WA, SA, VIC and Southern NSW and Queensland based Pets in Peace for a combined price of $49.8m of which $11.5m represents deferred consideration subject to the attainment of 2year earnings targets
  • The acquisitions represent a strategic expansion of the Group’s existing pet cremation business in NSW (Patch and Purr), and will create Australia’s leading provider of pet cremation services with a national footprint in an industry estimated to be growing at circa 9.0% per annum
  • The acquisitions are forecast to deliver combined annual revenue of circa $19.3m and EBITDA of $5.2m and will be EPS accretive in the first full year of operations

Family Pet Care Pty Limited is the country’s leading pet cremation services provider. Based in Perth and operating across six locations in WA, SA, VIC and Southern NSW they conduct approximately 52,000 pet cremations annually through two brands – Lawnswood (WA) and Edenhills (SA, VIC and NSW). Queensland based Pets in Peace is the largest pet cremation services provider in Queensland and performs circa 14,000 pet cremations annually from four locations across the southeast region of Queensland and more recently in Toowoomba

(Graphic Source – Company Reports)

2020 Half Year Results

Resilient Revenue Performance in the face of unprecedented disruption

InvoCare Limited (ASX: IVC) on 19 August 2020 announced its results for the half-year ended 30 June 2020.

Overview of group performance HY 2020

InvoCare impacted by COVID-19 but continuing demand shows the resilience of the funeral services and memorial sector with revenue down 6.2%.

In an extremely challenging operating environment, InvoCare’s revenue declined 6.2%, predominantly reflecting the effects of the COVID-19 pandemic. The Group remains committed to providing a high level of service to clients and our staff has responded to the COVID-19 challenges with innovative solutions to support client family needs. This has led to a strong Net Promoter Score of +78 which is a testament to the Group’s adaptability and its ongoing commitment to client families, staff and communities it serves. This commitment to continuing to serve our communities requires a high level of fixed costs which has contributed to the decline in Operating EBITDA of 22.7%. In order to better position InvoCare to trade through the pandemic, the Company took steps to strengthen the balance sheet. These actions included a well-supported capital raising by both institutional and retail shareholders of $274m, refinancing of $200 million of bank debt and achieving cash conversion of 98%.

The strength of the balance sheet and the resilience of the industry have allowed InvoCare to continue to invest in growth initiatives, pay in full the deferred 2019 final dividend of 23.5 cents and determine to pay an interim dividend of 5.5 cents on 5 October 2020.

(Graphic Source – Company Reports)

The key driver in declining revenue was a reduction in case average due primarily to the COVID driven restrictions on the number of attendees at funerals. The resilience of InvoCare services and renovated facilities played a role in limiting the Australian case average decline to 5.7% on PCP. Encouragingly, customer preferences returned to pre-COVID trends after the easing of attendance restrictions and this is reflected in the increase of case averages toward traditional norms.

InvoCare completed a $274m equity raising in the first half of 2020 with the net proceeds of the raising having initially been used to reduce net debt, increase liquidity and balance sheet flexibility to support the business during the current uncertain environment. This additional balance sheet flexibility will enable the business to continue to focus on completing InvoCare’s renovation program and invest in expanding our footprint in the regional markets of Australia and the pet cremation sector.

(Chart source: Barchart)

Protect and Grow strategy update

Network and Brand Optimisation

A core focus of the Protect and Grow strategy has been the Network and Brand Optimisation (NBO) program which is transforming InvoCare’s unrenovated, out-of-date and underperforming funeral homes into modern, contemporary locations with new capabilities that allow for additional service levels that are in-tune with client families’ needs and preferences.

 

InvoCare Ltd (ASX: IVC)
Stock Overview
Sector Consumer Services
Risk Medium
Market Cap $1.7 billion 
Share Volume 144.06 million
EPS (FY) $0.049
PE RATIO 240.4
Yearly Dividend Yield  2.46%. 
Target Price (s) T1 $13.50    T2 $15.90
Stop Loss $10.10
Recommendation Buy
52 weeks High $15.790
52 weeks Low $9.070
CEO Mr Martin Earp
Non-Executive Directors Mr Richard Davis
Ms Jackie McArthur

 

Market Risk Analysis

Restrictions on attendees across all operational zones for Funerals, Memorial Parks visitation. Client families choosing lower value brands and direct cremation offerings due to Government imposed attendance restrictions and economic uncertainty. Client family shift towards innovation that facilitates remote attendance. Various product offerings (catering, limousines, stationary) temporarily suspended.

 

Technical Analysis

Good recovery was seen on the stock charts from the month of August 2020 and has continued the same in the current month. On a weekly chart the stock is trading above the middle Bollinger and trading near to its minor resistance levels of $12.02 Drawing a Fibonacci from the swing high to swing low on the long term weekly chart, the stock made a high of $15.79 on 24 Feb24 2020 and low of $9.42 in September month. At present, the stock is trading in a sharp band with the expansion of the Bollinger band. The RSI taking positive divergence with MACD already in the positive zone, the upside move in the near term can be witnessed. Once the stock closes above its resistance level, it can have the potential of a further upside. Weekly candle closing above this level can potentially add to the momentum.

 

Veye’s Take

The acquisitions by InvoCare are a significant expansion into the adjacent market of pet cremations building on its 2018 entry into this market in NSW and transforming the Pet Cremation division of InvoCare into a meaningful contributor to overall earnings. These transactions are both very high-quality businesses providing exceptional levels of customer service. Expanding the pet cremation business is a natural evolution for InvoCare providing opportunities to leverage its decades of operating in the end of life market. The key driver in declining revenue was a reduction in case average due primarily to the COVID-driven restrictions on the number of attendees at funerals. The resilience of InvoCare services and renovated facilities played a role in limiting the Australian case average decline to 5.7% on PCP. The strength of the balance sheet and the resilience of the industry have allowed InvoCare to continue to invest in growth initiatives. The Company Protects and Grow strategy has been the Network and Brand Optimisation (NBO) program which is transforming InvoCare’s unrenovated, out-of-date, and underperforming funeral homes into modern, contemporary locations with new capabilities that allow for additional service levels that are in-tune with client families’ needs and preferences. The performance of the renovated locations continues to outperform the unrenovated locations with case volume being 7% greater in HY 2020 than against a do-nothing scenario. Veye recommends a "Buy" on “InvoCare Ltd” at the current price of $11.45

 


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