Propel Funeral Partners (ASX:PFP): The last surviving funeral provider on the ASX

It is said the only certainties in life are death and taxes and Propel Funeral Partners (ASX:PFP) is the only ASX company that makes its money from the former.

Its larger rival Invocare (ASX:IVC) was taken over by TPG Capital for $1.8bn last year after struggling for some time prior. Propel has had good fortune and is >60% above its pre-pandemic level…but what does the future hold? Could it be going the way of Invocare?

 

Introduction to Propel Funeral Partners (ASX:PFP)

Despite this company being the second largest funeral provider, you may not have its name before. This is because it is an owner of several franchises and we’d imagine you will have heard of some of them – White Lady Funerals and Simplicity Funerals just to name a couple.

Propel only came into existence in 2012 and was listed in 2017 at $2.70 per share. Many of its franchises go back several decades, however. It is 14.8%-owned by co-founders Fraser Henderson and Albin Kurti.

 

Australia’s 2nd largest provider

We’ve already noted that death is one of life’s two certainties. But it is also worth noting that funerals are a 24-hour, labour-intensive business with extensive planning and various facilities. And none of this comes cheap. Deaths in Australia are set to continue to grow in the years ahead. And Propel is the 2nd largest provider in the market with operations in 144 locations.

 

 

But fortunes don’t always favour it

However, deaths can fluctuate from year to year. The 2019 flu season was a good time for Propel. The start of the pandemic actually ended up being a bad time for the company because social distancing meant less deaths from the flu. Things changed once social distancing measures were dropped, however. And it showed in the company’s share price and results.

 

 

In FY23, PFP delivered $168.5m in revenue (up 16%) and a $20.9m profit (up 18%). It paid 14c per share in dividends. The company performed 18,029 and made $6,398 per funeral.

And in FY24, PFP delivered $209.2m (up 24%) and an NPAT of $23.4m (up 12%). It paid 14.4c per share, representing a 2.5% yield and a payout ratio of 85% of distributable earnings, off the back of 21,655 funerals although this figure was inflated by M&A activities. Average Revenue Per Funeral was $6,635. Since listing, the company has spent $295m on mergers and acquisitions.

 

Good times to come, maybe?

Consensus estimates for FY25 call for $238.0m in revenue (up 14%) and a $26.2m profit (up 12%). For FY26, a $252.6m in revenue (up 6%) and a $29m profit (up 11%). This places the company at a P/E of 30.8x for FY24, a figure slightly above the ASX 200 average, and the mean price is $6.31 per share (a ~5% premium to the current share price of $6).

It doesn’t appear cheap by any means, but if you wanted to value Propel on a takeover basis, it would be worth $8.14. This is using a P/E multiple of 37x, the implied takeover multiple of Invocare.

 

Getting offers of its own

Now, the company told investors only very recently it received takeover offers without being specific as to who were bidders and what they offers. As a consequence, the share price has not moved that much, but don’t be surprised if it moves if binding offers are made and revealed to investors.

There is evidently some growth in this one, albeit as much potential as other ASX small caps we have covered in recent weeks unless you want to assume it will be taken over.

 

One for Invocare investors, but for other investors?

All things considered, we don’t think investors will do bad with this one, unless it significantly underperforms. If history with this company is any guide, it will depend on death volumes during flu seasons. A bad flu season in 2025 will be good for PFP but a ‘good’ flu season will be bad for PFP and its investors.

 

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