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Dividend Portfolio: InvoCare Ltd (ASX: IVC)


Published 01-FEB-2017 00:00 A.M.


2 minute read

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Overview: InvoCare Limited ("InvoCare", "the Company") owns and operates funeral homes, cemeteries, and crematoria across Australia, New Zealand, Singapore, and the U.S. InvoCare owns key national brands Simplicity Funerals, White Lady Funerals, and Singapore Casket, as well as leading brands in each Australian state in which it operates. The Company’s operations stretch across 270 funeral locations and 16 cemeteries and crematoria.

Catalysts: InvoCare continues to be well managed and earnings sound, experiencing steady top-line growth. Over the past five financial years, the company has achieved a compound annual growth rate (‘CAGR’) of 10% per annum. Tight management of costs and an increasing percentage of pre-paid funerals provide increased certainty on price and future market share. The industry is relatively fragmented and consolidation via acquisitions provides additional upside. InvoCare has a strong track record of distributing income to shareholders.

Hurdles: Over the past few years, operating margins have been volatile and expenses have increased during H1FY16. The Company’s market share has recently declined and there is no guarantee that this trend won’t continue. Borrowings of 2.5x EBITDA and prepaid contract liabilities may impact InvoCare’s ability to expand in a relatively stagnant sector.

Investment View: InvoCare offers profitable exposure to demand for funeral services. We are attracted to its revenue growth trajectory, income profile, and resilient business model. Principal risks include lumpy earnings, cost control, and the potential to improve margins. InvoCare has a strong record of distributing steady dividends to its shareholders and as the company operates in a fragmented industry dominated by private operators, consolidation is a major value driver. We initiate coverage for its track record of revenue growth and defensive income profile and issue a ‘buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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