Shares of Asia Pacific's largest private funeral, cemetery and crematorium operator, InvoCare Limited (ASX: IVC), today slumped 7% on the back of a lacklustre interim profit result.
In the six months to 30 June 2015, InvoCare reported an 11.3% decline in net profit despite a 6.1% increase in revenues over the prior corresponding period.
The lower profit figure came about as a result of rising operating costs, squeezing InvoCare's operating margin from 22.8% to 21.7%, and a higher effective tax rate.
A 16.7% decline in profit from the New Zealand business and the establishment of InvoCare USA were the catalysts for the group's lower operating margins.
Pleasingly, robust operating cash flows enabled the company's board to maintain its fully franked dividend of 15.75 cents per share, the same as last year. The dividend will be payable on 9 October 2015, and the company's dividend reinvestment plan (DRP) is active.
"The business remains robust, evidenced again by the good first half result in the comparable operations, particularly Australia and Singapore," InvoCare's CEO, Martin Earp, said.
"Over the years InvoCare has delivered excellent returns to its shareholders and, in order to continue to enhance shareholder value, over the next few months InvoCare's executive team will be developing business plans for consideration and approval by the Board," Mr Earp added.
Should you buy InvoCare shares?
InvoCare is a leading Australian funeral business, with diversified operations and long-term tailwinds at its back. While today's results were disappointing, the market appears to have priced InvoCare's shares very richly given its positive long-term outlook.
Although savvy long-term investors will seek to build a position in the company's shares during times of operational hiccups, I'm holding off buying InvoCare shares until their valuation becomes more compelling.
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