Can the InvoCare (ASX:IVC) share price reclaim its 52-week high in 2021?

Can the InvoCare (ASX: IVC) share price regain its former glory in 2021? Invocare shares fell by nearly 16% in 2020. We take a closer look.
The post Can the InvoCare (ASX:IVC) share price reclaim its 52-week high in 2021? appeared first on The Motley Fool Australia. –

funeral asx share price represented by man holding flowers at a funeral

Funeral homes and cemeteries operator InvoCare Limited (ASX: IVC) had a rollercoaster year in 2020. The InvoCare share price fell as low as $9.07 in March 2020, after climbing to its 52-week high of $15.79 only a month earlier.

The share price is currently trading 1.3% lower for the day so far at $11.44 – which is still almost 30% off its highs of last year.

Can the InvoCare share price regain its former glory in 2021?

How did InvoCare do in 2020?

For its half year ending 30 June 2020, InvoCare produced revenue of $226 million which represented a 6.2% decline over the prior corresponding period. That resulted in a bottom line net loss of $18 million, compared to a $41 million profit in the same FY19 period.

The key driver in declining revenue was primarily COVID-19 restrictions on the number of attendees at funerals.

The company also said that, ironically, social distancing and increased focus on hygiene in the wake of the pandemic led to a virtually non-existent flu season and significantly lower mortality rates in calendar 2020. This further drove down the company’s revenue.

To keep the business steady in the first half of 2020, InvoCare completed a $274 million equity raising to reduce net debt and increase its liquidity.

Things were starting to look up in the second half however, with the company announcing the acquisition of two pet cremation and after life care businesses worth around $50 million.

Tailwinds for the InvoCare share price in 2021

Death is one of the few certainties in life, and InvoCare dominates the Australian funeral and death care industry.

As the largest provider of funeral, cemetery, and crematorium services, the company has taken a revenue market share of around 36% in Australia and 18% in New Zealand.

While death rates fluctuate from year to year, they tend to converge to a stable average over the long run. This is because mortality rates are a simple function of the population size, average age, and life expectancy of a country.

Given Australia’s ageing population, it is expected that the mortality rate in Australia will be around 2% per year over the next decade. This is expected to accelerate beyond 2030, providing InvoCare with a steady stream of future revenue.

InvoCare believes that conditions in 2020 represent a blip, and that death rates and revenues will return to normal over the near term.

Also underpinning InvoCare’s prospects is the belief that its customers, typically the family of the deceased, are relatively price-insensitive given the highly emotional context surrounding the death of a loved one. This means people are less likely to shop around and compare prices for funeral services than they would be for other services.

How competition might affect InvoCare

As the biggest operator in the industry, InvoCare enjoys considerable bargaining power when it comes to sourcing coffins, cars, flowers, and the other components that typically make up funeral services.

This has allowed the company to operate at a higher profit margin than its next biggest competitor, Propel Funeral Partners Ltd (ASX: PFP).

Propel is aiming to increase its market share through acquisitions, thus potentially presenting InvoCare with increased competition.

In November, Propel announced it had completed the acquisition of The Dills Group and MidWest Funerals, which will add around 800 funerals a year to its revenue stream.

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Motley Fool contributor Eddy Sunarto 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.

The post Can the InvoCare (ASX:IVC) share price reclaim its 52-week high in 2021? appeared first on The Motley Fool Australia.

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