The InvoCare Limited (ASX: IVC) share price is up nearly 9% at the time of writing after the country's leading funeral operator released its FY18 report.
InvoCare reported that its operating sales revenue increased by 1.4% to $477.3 million, which management attributed to 11 acquisitions that it made and the realisation of deferred memorial sales.
The number of deaths during 2018 was, as expected, lower in Australia due to a mild winter and effective flu vaccinations – the number of people going to a doctor with flu-like illnesses was down "significantly" compared to 2017 and the 5-year average. The number of deaths in 2018 was estimated to be down by 3.1%.
InvoCare informed investors that two consecutive years of deaths hasn't happened in nearly 30 years. Plus, 240,000 deaths per annum is expected by 2034 in Australia, compared to 160,000 in 2018.
Operating EBITDA declined by 4.3% to $119 million and the operating EBITDA margin decreased by 150 basis points, or 1.5%, to 24.9%.
Operating earnings after tax fell by 22.1% to $49.5 million and operating earnings per share (EPS) declined 21.6% to 45.4 cents. There was a higher depreciation charge due to all of the renovation works that have occurred and there were higher interest payments due to all of the acquisitions leading to higher debt.
The FY18 dividend was reduced by 19.6% to 37 cents to reflect the high usage of cash for renovations and acquisitions.
InvoCare re-affirmed that the EBITDA generated from the renovated sites is better than what was modelled and the company sees the renovation changes driving market share from 33% to 40% (excluding acquisitions) over the next decade.
2019 Outlook
InvoCare plans to continue to make new regional acquisitions, integrate the recent acquisitions and is focusing on its renovated locations to better service customer's current needs.
Management said that improved trading in the Australian funeral business in the fourth quarter and January 2019 is pointing to the market normalising. The company is confident that the investments it has made will lead to double digit operating EBITDA and EPS growth in the medium to long term.
InvoCare is currently trading at 30x FY18's operating earnings, which is expensive. But if FY19 deaths return to the expected growth rate then it could be a bumper year. At above $13.50 I'm not jumping to buy shares, it was better under $12, but it could still be a solid defensive choice from here over the long-term.
