The Propel Funeral Partners Ltd (ASX: PFP) share price has grown by 5.4% this morning after reporting its half-year result for the six months to 31 December 2017.
Propel is the second largest funeral provider in Australia and New Zealand.
Here are some of its highlights compared to its unlisted prior corresponding period:
- Revenue up 84% to $38.9 million
- 'Operating' earnings before interest, tax, depreciation and amortisation (EBITDA) up 78% to $10.8 million
- 'Operating' net profit after tax (NPAT) up 90% to $6.3 million
- Net loss after tax of $1.22 million
- No interim dividend declared
The two reasons for the net loss after tax were $2.8 million of IPO and transaction costs, as well as $21.88 million paid in a one-off non-cash share-based payment expense, which was recognised in the accounts.
I believe the main reasons why the market liked the report are that a lot of financial metrics beat the guidance in the prospectus and FY18 guidance was increased. Funeral volumes were 3.4% higher than expectations, average revenue per funeral was $97 above the full year forecast. Not only that, the gross profit margin, operating margins, key expenses as a percentage of revenue and cash flow conversion were all higher than the prospectus guidance as well.
A key part to the company's future growth is acquisitions. A year ago, the company had 50 locations, at the end of December 2017 it had 80 locations and it currently has 103 locations after acquisitions such as Brindley Group.
After all of the current acquisitions have been settled Propel will have a net cash position of $21 million to fund acquisitions. Management said that the company intends to explore raising a debt facility during 2018.
Propel believes the funeral industry is a good long-term growth opportunity because the death volume in Australia is expected to grow by 1.4% between 2016 to 2025 and then 2.2% from 2025 to 2050.
Management estimates that Propel has a market share of approximately 4.1% in Australia and 6.7% in New Zealand. Acquisitions will boost the market share and revenue.
Propel's dividend policy will be to target a payout ratio of 75% to 85% of 'pro-forma distributable earnings', but will not start paying the dividend until the full-year result.
The company has upgraded its forecast FY18 operating EBITDA to $21.1 million, which is 15% higher than the forecast in the prospectus of $18.4 million.
Foolish takeaway
Overall, I thought this was a very encouraging start to Propel's listed life. Beating forecasts is clearly a good thing and as long as management maintain a very disciplined approach to acquisitions and keep the balance sheet in good order then it should have a good long-term future.
Propel trades at a higher valuation than the market average, but I think it could be a good long-term buy at the current price.
