Two things are inevitable: taxes and death. And, to put it bluntly, while the former costs, the latter can be lucrative. Unsurprisingly, there are funeral companies listed on the stock exchange all over the world. This article recommends investing in three of them.
Conseil 1 : Carriage Services
In the United States, two listed companies are active in the funeral sector. Service Corporation International is the world’s largest funeral and burial company. Slightly smaller, Carriage Services seems a little more interesting to us.
Carriage Services is a leading provider of funeral services and products (flowers, wreaths, etc.). This company manages 164 funeral homes and 31 cemeteries. Its franchise model and the acquisitions it sometimes makes – for example, Greenlawn Funeral Homes at the start of 2023 – ensure regular growth. Truly supported, franchise brands are also relatively free to establish lasting relationships with their local community with a view to achieving long-term growth and therefore providing revenue and profits to the group. It makes no secret of its desire to continue to grow and achieve a substantial market share, relying on solid financial foundations and providing high quality services.
The stability of the funeral industry is reflected in the growth in turnover of Carriage Services, whose revenues have increased by 6% per year on average over the last 10 years. It is only in 2022 that they have not changed: this is normal, since the deaths caused in 2021 by Covid-19 have distorted the basis of comparison. Adjusted earnings per share have grown 8.4% per year on average over the past decade. During this same period, the quarterly dividend jumped 18.2%, from $0.025 to $0.1125 per share. Note, however, that the dividend has only increased (very significantly, therefore) five times during these years. Its last increase dates back to October 2021, and no further increase seems to be on the agenda for the moment.
The acquisition, at the beginning of last year, of Greenlawn Funeral Homes, increased Carriage Services’ net debt ratio to 4.6 times operating cash flow, a level that is certainly very high but which, given the stability of cash flows, should not pose a problem and will decline quickly. The transaction will generate additional sales and profits, benefiting an increase in the stock price. Carriage Services expects revenue of $390-400 million and adjusted earnings of $2.30 to $2.40 per share this year. The price/earnings ratio is around 14, which is reasonable. The dividend yield stands at 1.4%. For now, reducing debt is more urgent than increasing the dividend.
Conseil 2 : San Holdings
Japan is a country where demographic aging has taken on a truly exceptional scale. In 2005, 20% of Japanese people were over 65; this figure will reach 30% in 2025, and it is not over. The population has been decreasing for around ten years but as life expectancy increases, the peak (1.7 million deaths per year), or 10% more than today, will only be reached around 2040.
The archipelago has three listed funeral companies: Heian Ceremony Services, Tear Corporation and San Holdings. The first two offer attractive valuations, as well as higher dividend yields (3.6% and 4.5% respectively) than San Holdings, which currently stands at 2.2%. But their market capitalization of around 60 million euros is derisory; It is therefore better to turn to San Holdings, whose market capitalization is 150 million euros and which, with a price/earnings ratio of 9.5, is at least as interesting.
San Holdings, which presents itself as a “trusted partner of elderly people and their families”, does not just settle the organization of funerals: it also believes it has a role to play in supporting mourning, a mission which it strives to accomplish through its three subsidiaries. It also operates, through its subsidiary Life Forward Co, a website created in 2020, which offers almost all products and services related to death – the organization of the estate, for example. In doing so, San Holdings responds to the desire of a growing number of elderly people to actively prepare for the end of their lives, thanks to the Internet. For customers, the added value of the site lies in its offer of safe and reliable partner companies.
San Holdings has also recorded a constant increase in its sales over the last decade, except also after the health crisis. According to the latest ten-year vision statement, its main goal is to have funeral centers in all regions of Japan. It therefore intends to open a certain number of them in the medium term, without excluding acquisitions and alliances. By 2032, the number of centers should double, to reach 210 units. Its second objective is to develop in the more recent segment of end-of-life support, which, for this company with a rock-solid balance sheet and whose price/earnings ratio will not exceed 10.5 this year, should result in stable growth of at least 7% per year. Its cash flows also allow San Holdings to buy back its own shares, during operations that management very judiciously makes depend, at least in part, on the share price. Since it began its ascent in 2016, the dividend has appreciated by more than 10% each year. With a payout ratio that has been hovering around 20% for some time, it has undoubtedly not completed its rise.
Conseil 3: Fu Shou Yuan International Group
Founded in 1994 and listed on the Hong Kong Stock Exchange, Fu Shou Yuan International Group is a provider of death and life technology services as well as, in its own words, “an explorer and carrier of development and reform of the funeral sector in China”. The group operates in more than 60 sites spread across around forty cities, including Beijing and Shanghai. The range of its products is vast, ranging from funeral services to cemetery operations to the supply of commemorative items.
Fu Shou Yuan is the company that introduced to China the notion of funeral preparation by the elderly person themselves. It also manufactures a certain number of supplies, such as rolling carts for placing coffins, environmentally friendly cremation devices, or combustion gas capture systems, in fact. The design and development of cemeteries, whether in the plains or in the mountains, are also part of its offering. Finally, its Fu Shou Cloud platform hosts obituaries, tributes and digital photo albums. Management notes that as prosperity sets in in the country, the question of the quality of funeral services takes precedence over that of their accessibility.
Fu Shou Yuan’s turnover and net profit have quadrupled since the group’s IPO in 2013. As the number of shares in circulation also increased slightly, earnings per share did not “that” tripled. Turnover will remain on an upward trend over the coming years. Fu Shou Yuan seeks to continue expanding through acquisitions, purchasing land suitable for setting up cemeteries, and entering into partnerships with local authorities and funeral homes. Opportunities for overseas expansion are also being explored.
In the medium term, the company’s profit could increase by approximately 10% per year. The dividend has more than tripled since 2015 and its yield currently stands at 3.4%. On October 31, Fu Shou Yuan paid its first special dividend, set at 0.21 Hong Kong dollars (HKD), corresponding to a yield of 5%. Given the forecast profit of HKD 0.30 per share, the price/earnings ratio (more than 13, for this year) is not excessive.
