UK funeral operator Dignity experienced almost a -50% decline in it share price last week, after signalling it would cut prices in response to competitive pressures. Several brokers contemplate the implications for Australasia’s major provider of funerals, InvoCare ((IVC)).
Funeral services provider InvoCare ((IVC)) is continuing with its strategy to invest capital to protect its network and stem market share losses going forward. The company’s plans for growth are important as it cannot rely on acquisitions, given likely competition restrictions, as it has done in the past.
One very high quality business listed on the ASX is Invocare Limited (ASX:IVC). IVC is the clear market leader in funeral homes, cemeteries and crematoria in Australia, and has a strong market position in New Zealand and Singapore. The idea of a business whose revenue is tied to the death rate may not be everyone’s cup of tea, but from an economic standpoint, it is one you have to admire.
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Morgan Stanley observes 2018 is turning out to be messy. Earnings are clouded by accounting issues, refurbishments and M&A. The broker reduces forecasts following the October downgrade, given an accelerated decline in the number of deaths in June-August.
The business is experiencing sharp declines in case volumes, partly explained by closures for refurbishment. However, this highlights a concern for Deutsche Bank regarding the fall in volumes in Australasia as a result of a weaker market and share losses.
Invocare has acquired Grafton & District Funerals. Acquisitions are expected to offset some of the temporary impact from the protect & grow investment plan. Macquarie suggests this plan will cause short-term disruption as additional sites are refreshed and enhanced.
Morgans expects the first half result on August 16 to be affected by reduced volumes because of the temporary closure of renovated sites. The broker forecasts first half operating earnings will be down -12%, in line with revised management guidance.