Stock Pick

A rare buying opportunity in 1 of Australia’s top shares?

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A group of people in suits watch as a man puts his hand up to take the opportunity.

I’d call the ASX share Propel Funeral Partners Ltd (ASX: PFP) one of Australia’s top shares. Fortunately for investors, it’s currently trading at a great price given its long-term outlook.

As the name suggests, it’s a funeral operator – the second biggest in Australia and New Zealand. It also operates cremation facilities.

While it’s a morbid idea, it does provide an important service for the Australian community.

As the chart below shows, the Propel share price is down 33% since the start of the year. I think this is a great time to consider the business.

Let’s take a look at what makes it such an appealing option right now.

Long-term tailwinds

One of the main reasons why I think it’s one of Australia’s top shares is that the business has some of the clearest, long-term tailwinds on the ASX.

Sadly, the business is required to perform a certain number of funerals each year, giving the business very defensive earnings. As the saying goes, it’s one of the certain things in life.

The number of funerals is predicted to grow in the coming years because of Australia’s ageing and growing population.

Propel says that Australian death volumes are expected to increase by 2.9% per year from 2026 to 2035 and 2.4% per year from 2036 to 2045. In other words, there’s at least 20 years of an expanding addressable market for the funeral sector.

That may not sound like a strong growth rate by itself, but we should remember that the revenue growth from higher volumes can be combined with a rising funeral price over the long-term.

Between FY15 and the first half of FY26, its average revenue per funeral grew at a compound annual growth rate (CAGR) of 2.8%. When you combine mid-single-digit revenue growth, with the potential for rising profit margins from increased scale and solid dividend payments, I think that can translate into a pleasing average total shareholder return (TSR) annually over the long-term.

Valuation

Using the forecast on CMC Invest, the business is trading at 21x FY27’s estimated earnings with a possible grossed-up dividend yield of 5.7%, including franking credits.

The business is expected to grow earnings by another 7% in FY28 and pay a grossed-up dividend yield of 6.1%, including franking credits, at the time of writing. Those are pleasing statistics, in my view, for one of Australia’s top shares.

For a business that could continue to grow over time, I think the current valuation for such a defensive business is fair. Plus, whilst we own it over the long term, it can pay a pleasing level of passive income during the period and deliver ‘real returns’.

The post A rare buying opportunity in 1 of Australia’s top shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Propel Funeral Partners. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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