What: Leading funeral services provider InvoCare Limited (ASX: IVC) has released a solid set of interim results which reconfirms my view as outlined here that this is a high quality stock that would make a superb portfolio addition at the right price.
To highlight the performance of this business, take a look at InvoCare's share price appreciation over the past decade which has seen long-term investors enjoy a gain of 360%, compared to gains of just 60% from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO)!
So what: At an operating level the half year after tax profit increased 12.8% to $19.4 million on the back of a 6.8% increase in sales. For yield-hungry investors perhaps the only blemish on the results was that the dividend was only raised by 5% to 15.75 cents per share.
The double-digit growth in earnings on the back of a single-digit increase in sales highlights the leverage inherent in InvoCare's business model. Earnings growth was driven by an uptrend in funeral volume, a trend which is expected to increase substantially in coming decades in the key Australian and New Zealand markets.
Now what: Management commented that InvoCare's market share has remained relatively flat since December 2013 but was down on the previous corresponding period. Management highlighted eight initiatives it is undertaking to address its market share decline which included the opening of three new locations over the past year.
Too late to buy?
Investors are expecting a strong second half with the group forecast (according to Morningstar's consensus data) to earn 42.4 cents per share for the full year to December. If InvoCare hits this number it implies the stock is currently trading on a price-to-earnings multiple of 27.6. This is a high quality and defensive business with decent growth prospects and all these factors do arguably mean InvoCare deserves to trade on a premium to the market average. However, the current premium is also arguably excessive.
