Australia’s largest funeral company, InvoCare (ASX:IVC), has just reported a 1H19 result which has raised market concerns on their ‘Protect and Grow’ strategy and funeral volumes. Although InvoCare indicated that volumes in July were in line with company expectations, they could not provide guidance for FY19 given the important late Winter months are still to be traded.

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Any increase in death rates due to a bad flu season in the winter of 2019, will be crucial to its financial performance for InvoCare in 2H19, after it missing its profit guidance in the first half.


Why are funeral volumes important

At InvoCare’s Annual General Meeting on 14 May 2019, shareholders were advised that “soft market conditions, namely, a lower number of deaths” impacted on InvoCare’s bottom line 2018, but the market was “normalising” and more Australians will probably die this year.

According to InvoCare, the ‘dip in funeral volumes’ was due to an effective vaccination program and an unusually mild winter flu season, but “expectation is for the number of deaths to return to long term trend”.

Given the decline in industry volumes in 3Q18, the market and InvoCare’s earnings profile, funeral volumes will likely remain relatively sensitive in the coming months.


What does this mean for InvoCare shareholders

Over the last several months, investors have become increasingly optomistic on InvoCare, however, if you start looking at the numbers, the bullish predictions for investors may not be all it seems to be.

There may be bigger things at play which could be impacting on InvoCare’s funeral volumes, rather than increased death rates.

“We are starting to see cracks in their business model”, says eziFunerals owner Peter Erceg. “Consumers are becoming more demanding and sophisticated. Values are changing, we are less religious and there is a growing demand for personalised, lower-cost services,” he said.

“Our Clients are becoming more aware of pricing structures and what is available, which makes it easier for consumers to plan a funeral and shop around at a time when they are consumed by grief”, he says.

So the market will be watching closely, when the ABS releases its next death rates report in 2019. Only then will we be in a stronger position to assess InvoCare’s assumptions on funeral volumes and the impact of other market forces on the big funeral chains bottom line.


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