Propel Funeral (ASX:PFP) share price gains some glow after strong results

The Propel Funeral Partners Ltd (ASX: PFP) share price is trending higher today after the funeral operator announced its first-half results to the market. At the time of writing, Propel Funeral shares were trading at $3.05, up 3.4%.

Shareholders seem to be pleased with the performance over the period. Let’s take a look at the numbers.

What’s moving the Propel Funeral share price today?

Propel Funerals opened its results with the overarching guide of COVID-19 impacts on the business. The period was marked by a high focus on hygiene, lack of travel, and reduced number of flu cases. Consequently, there have resulted in abnormally low deaths during the period. As morbid as it may seem, this did impact Propel’s operations to an extent. 

However, lower death volumes were partially offset by a lift in average revenue per funeral. Once funeral attendee limits were lifted, average revenue increased.

Overall revenue from operations increased to $59 million, a lift of 3.5% on the prior corresponding period. While earnings before interest, tax, depreciation, and amortisation (EBITDA) bumped ahead to $19 million, an increase of 14.8%.

Impressively, despite ongoing disruptions, Propel managed to widen its operating margin in the half to 32.2%. However, the real headliner of Propel’s result is the outrageous 141.7% increase of its bottom-line profit.

Compared to the previous period (pre-covid), profits were $3.4 million for the half. This has grown to $8.2 million. This was aided by further acquisitions during the year. Although, it is worth noting that last year’s profit was reduced by a $4 million performance fee. 

Furthermore, the board has declared a fully franked interim dividend of 6 cents per share. This is a 50% increase from 1H FY20’s dividend of 4 cents per share. Based on the nominated distribution, the payout ratio is roughly 82% and the dividend yield is 4.1%.

Will it be propelled into the future?

Propel Funerals is betting on below-trend death volumes being temporary. While that could be perceived as grim, it’s more of a historical fact of life (and death). The company sees the growing and aging population in Australia and New Zealand as growth drivers moving forward.

The funeral operator has also specified that it will continue to make acquisitions where sensible. Propel considers the industry to be fragmented. Therefore, it sees an opportunity in being a consolidator, despite already being the second largest in Australia. For reference, InvoCare Limited (ASX: IVC) is the largest.

According to Propel’s balance sheet at the end of the half, cash is looking a tad low. Currently, it stands at $6.8 million. Compared to the end of June last year, when cash was $53.9 million. If Propel does want to make further acquisitions, it has a few options. It will either need more profits, a capital raise, or an increase in debt.

Propel Funeral Partners has a market capitalisation of $295 million.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited and Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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