Is this the most defensive ASX share money can buy?

ASX defensive shares are a good place to look for investment opportunities in the current economic environment. While interest rates may be lowered this year, there still is uncertainty about whether there’s going to be a downturn or not. So, I’m going to tell you about Propel Funeral Partners Ltd (ASX: PFP).

Extremely defensive earnings

There’s a saying that there are only two things certain in life – death and taxes. We can’t invest in the Australian Taxation Office (ATO), but we can invest in this funeral provider.

Sadly, a certain number of people are going to die each year. This means there’s a fairly consistent amount of demand annually.

Propel is a funeral operator in Australia and New Zealand with a market capitalisation of more than $600 million. It is the second biggest funeral provider in the Australia and New Zealand region.

The company has increased its market share in Australia from around 1% in 2015 to approximately 8% in 2022. It has a sizeable market share which is steadily growing thanks to its organic growth and a steady flow of acquisitions. At the company’s AGM, it advised it had committed $121 million to acquisitions over the past 12 months.

Growth tailwinds

If a company is able to grow revenue, even in a downturn, then I think it can claim to be a relatively defensive ASX share. FY23 saw Propel’s revenue increase by 16%, even though the 2023 financial year didn’t exactly see a recession.

According to the Australian Bureau of Statistics (ABS), death volumes are expected to increase by 2.4% per annum from 2023 to 2030 and 2.5% per annum from 2030 to 2040.

If Propel can maintain (or grow) its market share, then it should experience an increasing number of funerals as the years go by, though it won’t necessarily go up every single year.

In FY23, the business saw a funeral volume of 18,029, an increase of 9% year over year.

Appealing factors for profit and dividend growth

Not only is the number of funerals growing, but the company is increasing its profitability.

Propel is achieving a steady increase in average revenue per funeral – this increased by 6% in FY23, and it has grown at a compound annual growth rate (CAGR) of around 3% since FY14.

If the business can increase its profit, this could lead to a growing dividend and a rising Propel share price over time.

As I mentioned, FY23 saw revenue rise 16%, while the operating net profit after tax (NPAT) increased 17.9% to $20.9 million.

In the first quarter of FY24, the company saw the average revenue per funeral increased by a further 4.3% year over year to $168.5 million.

In FY24, Propel expects to report revenue of between $200 million to $220 million — an increase of between 18.7% to 30.5%.

Valuation

The ASX defensive share is currently valued at 30x FY24’s estimated earnings, according to the forecast on Commsec, with more growth expected in FY25 and FY26, putting it at 24x FY26’s estimated earnings.

The post Is this the most defensive ASX share money can buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 recommended Propel Funeral Partners. 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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