Ann: Change of Director's Interest Notice, page-21

Not enough people dying by the looks of things!

@Just_a_guy

Yeah, there’s no shortage of wordplays and puns with IVC (so I try to self-discipline myself in this regard).

Anyone have any idea how the multicultural shift in Australian demographics is affecting the funeral sector?

I don’t think it is making a meaningful difference per se; operators in the sector, including IVC, seem to be aware of the changing needs of customers (not least changes in the mix of religious beliefs) and planning accordingly. Overall population growth is naturally conducive to future growth in the death rate as well, with a time lag that depends on the breakdown by age; but, broadly speaking, the two things are (self-evidently) very highly correlated.

I haven’t looked in depth into the statistics, but it’s all stuff that is relatively easy to model, so I am OK to just take the death rate projections periodically published by the Company in their Annual Reports as a starting point for a DCF-type valuation.

Is IVC in for long term tail or head winds?

IVC are going to naturally benefit from long-term population growth, as long as they don’t lose market share and pricing power, so the main concern for me is the latter. They should be able to organically (i.e. pre-acquisitions) increase their revenue line at no less than the compound rate of annual death growth and CPI inflation, and at the moment that is not happening.

To conclude, my personal view is that the general macro backdrop for this company is positive, but they do need to fix some short-term issues, such as market share. Once there is evidence of that happening, I do expect a valuation re-rating, which will obviously be a function of the level where earnings end up stabilising. I am just not sure how long that is going to take and, at present, I do not see enough margin of safety (in FCF yield terms) to buy in regardless.

IMHO & DYOR

P.S.: The IVC situation is in some respects similar to what GEM (childcare) are going through at the moment, so if you’re interested you might find helpful what I’ve recently written on the GEM thread.