Propel Funeral Partners Limited - Reversion to Pre-COVID-19 Trend Drives Growth
Propel Funeral Partners Limited
Reversion to pre-COVID-19 trend drives growth
Propel Funeral Partners Limited (ASX:PFP) is the second-largest private provider of death-care services across Australian and New Zealand with 145 separate locations (78 of which are freehold with a book value at cost of $132m), 32 cremation facilities and nine cemeteries. The network has both single- and multi-site brands retaining strong community awareness. The group was founded in 2012 and listed on the ASX in November 2017, raising $131.2m at $2.70/share for both greenfield developments and acquisitions. The group has undertaken acquisitions totalling $150m since IPO and now has an estimated 7.0% market share across Australia, second only to major competitor and peer Invocare (ASX:IVC). The most recent capital raise was in October 2021, raising $63.7m at $4.10/share for debt reduction and growth initiatives. The group undertook an internalisation of management rights in July 2021 to simplify the operating structure, increase investor interest and better align the interests of both businesses. Not surprisingly, the key driver for PFP revenues is the number of deaths across Australia and New Zealand. FY21 saw a below-average death rate in part due to an almost non-existent flu season, but H1 FY22 has seen a reversion of this trend with volumes +7.8% on a like-for-like basis (+14.9% in total). Longer term, using the ABS datasets, the CAGR death rate between 2019 and 2030
Business model
The group’s business model has not changed since listing and that is to acquire social infrastructure and assets which operate in the death-care industry across Australia and New Zealand. From 80 locations, 19 crematoria and five cemeteries at listing in 2017, PFP has grown to 145 locations, 32 crematoria and nine cemeteries today. Such consolidation creates efficiencies through improved procurement, the sharing of human resources and career progression. PFP is founder-led, with the co-founders/senior executives owning 17% of the company. PFP completed an internalisation of management services in July 2021.
Pro-forma H1 FY22 strong on the pcp
The pro-forma H1 FY22 results contain material changes relative to the pcp in terms of the impacts of the management internalisation and government subsidies. In 1H FY22, revenue growth was 15%, EBITDA growth was 17.8% and NPAT growth was 30% on a pro-forma basis (i.e. adjusting for the management internalisation and government subsidies). Funeral volumes increased 14.9% in total and 7.8% on a like-for-like basis, while revenues per funeral increased 0.5% to $5,902 on the pcp (an increase of 2.5% on the pre-Covid period). This metric is well below peer Invocare at ~$8,191.
Invocare the clear and obvious peer
PFP is pursuing an acquisition-led growth strategy whereas rival and ASX-listed peer Invocare (IVC) has invested $200m+_in its existing network via a “Protect & Grow” capex program over the last 4 years. IVC has a market-leading ~23% share of the Australia death- care market. IVC also has a large pre-paid funerals business and incorporates a funds management operation, and has operations in pet cremation and Singapore. A comparison of key financial metrics across the two groups suggests PFP is trading at an 8%-15% PER discount based on consensus estimates for FY22 and FY23 at current prices.
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