Skip to main content
EquitiesRetail

Propel Funeral Partners (PFP): Accretive market share growth

Executing in the regional portfolio

Propel Funeral Partners (PFP) announced three acquisitions in regional Australia/New Zealand at A$10.6m (cash/script based) today and an upsizing of funding facilities. While these are new markets for PFP, the company will also acquire freehold property in these new businesses and the existing PFP business including a cremation facility in regional NZ which we think would drive margin expansion on improving revenues from acquisitions over time. We see PFP growing their market share towards ~11% (Aus, BPe) in comparison to market leader, Invocare’s market share of ~22% in 1Q23.

Earnings changes

We factor in the acquisitions announced today where we forecast a 3-month contribution in FY24e and $5m annualised revenues in FY25e. On the back of the full year contribution in FY25e, we estimate a ~2% incremental contribution to our forward revenues and ~1% accretion to NPAT, in line with the company’s expectations for earnings accretion in year 1. We also account for minor scale benefits in the operating cost line over the longer term given PFP’s market share of ~11% that we estimate with the recent acquisitions annualised. The net result sees our NPAT forecasts +0.1%/+1.1%/+0.8% for FY24/25/26e.

Investment View: PT up 3.5% to $5.90, Maintain BUY

Our Price Target increases 3.5% to $5.90/share driven by our medium-longer-term earnings changes. We continue to view PFP’s growth as well supported by a strong underlying business with good pricing power in addition to its acquisitive strategy in a large and fragmented market. We expect organic volume growth to return in 2Q24 as we have seen in NSW/VIC death statistics for the month of October/November and medium-long-term growth to be further supported by ageing baby boomers as the older cohorts reach average life expectancy in ~3 years. We also see unlocked value in PFP’s freehold property portfolio which sits on the Balance Sheet at cost, valued close to $220m less depreciation (BPe) and view this as a hedge to the net gearing level of 2.9-3.2x (management estimate).

To read the full report click the button below.

View Detailed Report
Authored by Chami Ratnapala – Analyst – at Bell Potter Securities, 19 December 2023
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.