Full year results for Invocare Limited (ASX: IVC) came in with a strong 11.6% gain in reported annual net profit after tax. The funeral home and cemetery operator stated the 7.2% gain in financial year 2014 revenue was due to a rise in the overall number of deaths in both the first and second half, for about 3.2% year-on-year growth.
FY 2014 numbers were a return toward long-term death rate trends after FY 2013 numbers were slightly under trend. The company's business growth is proportional to the average death rate, so as the population rises in its Australia, New Zealand and Singapore markets, the volume of business is projected to grow.
Basic earnings per share (EPS) were 49.8 cents for the full year, up from 44.7 cps in the previous corresponding period. Strong earnings growth in the second half offset a decrease in the first half.
Invocare, the largest private funeral, cemetery and crematorium operator in the Asia Pacific region, said that it maintained market share through the year. It operates a large number of brands such as White Lady Funerals and Simplicity Funerals. Invocare steadily grows the business through acquisitions of single and privately owned businesses across Australia.
The company announced its first step in entering the US funeral market with the creation of Invocare USA, Inc. Starting out in southern California, that region's annual number of deaths is around 100,000, or about the same as the whole of Invocare's Australian market.
The company doesn't project the start-up will generate a profit during its initial three years. Annual sales aren't forecast to exceed US$10 million in that time and investment costs are expected to be around US$8 million. The business will commence in February 2015.
Here are the full year results highlights:
Sales up 7.2% to $413 million
Earnings before interest and tax, depreciation and amortisation (EBITDA): $101.1 million, up 6.4%
Net profit after tax (NPAT): $54.5 million, up 11.6%
Earnings per share: 49.8 cents per share, up 11.4% from 44.7 cps
Dividends per share: final dividend of 20.75 cents per share, up 6.4% from the previous corresponding period. Full year dividends totalled 36.5 cps, up 5.8%
Outlook: Operations in early financial year 2015 are initially in line with expectations. One funeral home acquisition in Victoria was completed in December 2014 and the company plans to expand its memorial parks business in New Zealand through potential acquisitions.
The business will generally fluctuate with the average death rate, but Invocare's growth also comes from its successful acquisition of competitors. The funeral business is a common necessity, yet there aren't many new market entrants for this kind of industry, which gives Invocare the opportunity to build market share over the long term.
The stock yields 2.6% fully franked and over the past five years dividends have increased an average 8% annually. That is good, solid growth for dividend investors.
