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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.




InvoCare Limited (IVC:ASX)

InvoCare is an Australian company that owns and operates funeral homes, cemeteries and crematoria aross Australia and Singapore. This business has been operating since 1892. It is the largest funeral, cemetery & crematorium industry operator in Australia and Singapore. It has a market capitalisation of $0.6 billion. Sales revenues in 2009 was $257million.

It now operates out of 182 locations across Australia, including 12 cemeteries & crematoria. As at April 2008, there were 76 funeral homes under the brands: White Lady Funerals and Simplicity Funerals. Liberty funerals was acquired a few years ago adding a number of cemeteries and crematoria throughout regions in NSW and QLD.

InvoCare has made innovatie changes to its business to accommodate the multi-cultural nature of Australia and offers more options for burial and cremation sites and memorials than ever before. This includes Asian sections designed with feng shui advisors and outstanding crypts, vaults and family mausoleums preferred by many European communities.

We think InvoCare will build on its strong market position, expanding slowly by acquisition and continuing to enhance brand strength through advertising. Scale efficiencies and prepaid funerals
will help the bottom line. We are pretty confidence that tough economic times will not impact the company's good margins. The management team at InvoCare are risk averse and experienced.
The company enjoys an asset rich balance sheet with total assets in excess of $340million.

The morbid nature of InvoCare’s operations may be just what makes it an attractive investment; as they say in the north of England, ‘where there’s muck, there’s brass’. Heavy industry regulation, relatively high upfront investment (for example, in hearses and mortuaries), restricted land availability and the time required to establish referrals all tend to keep competition iat bay. So there are considerable barriers to entry for new comers in this sector.

Since the company floated in December 2003, the shares have steadily appreciated from their $1.85 issue price to around $6 now. We expect further steady gains into the future.

The five factors that we believe will keep InvoCare on the growth trajectory are:

1.Ageing population trend

2.Consistent annual 3-4% pricing increments

3.Market share improvements including new funeral locations

4.Business acquisitions in Australia and internationally

5.Growth of prepaid funeral contributions

InvoCare is not a company that we expect explosive growth from, however the funerals business is virtually recession proof and the demographics certainly support steady growth into the future.

If you are looking for a conservative long term investment with a secure dividend (4.2% fully franked) then this could fit the bill.

Buy InvoCare Limited (IVC:ASX) up to AU$ 6.20






Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.