What to do with IVC shares?
The Aussie market was hammered again today. Oil is now firmly lower than $40 now.
To be completely honest, I was surprised to see oil fall further. I still believe we are in a broad bottoming process, but the recent spike downward does mean the bottom is deeper than I previously thought.
Let’s turn to InvoCare Ltd [ASX:IVC].
My baseline forecast for the stock is quite positive. Having factored in a declining growth rate for IVC’s revenue, I still see the stock price getting to around $16.52. This is a 40.7% upside.
So what factors drive the stock price of IVC?
Death of course! The mortality rate in Australia is about 6–7 people per 1,000. You can think of this figure as a constant rate.
People’s spending power (against inflation given employment) also have some impacts on the business.
Overall economic growth does have an impact on the stock.
However, IVC is now expanding into the US market. It is also expanding within Australia and New Zealand.
This expansion or growth is putting that extra premium on its growth over GDP, which is about 5.5% against a much lower GDP growth, as well as inflation (through growth in average contract values).
In the short term, price is swayed by emotions. Emotions are partially based on expectation versus reality.
The latest half year result saw a slower profitability, due to the expenses in its expansion effort in the US, and its lower return in FUM (funds under management).
US segment losses will reach $3 million for the full year. The company is trying hard to bring up FUM, which was dampened by the bearish market over the last few months.
Would you say the company is a good business overall?
Yes — IF it continues to expand geographically and successfully.
That of course brings up cost, coupled with unfavorable market conditions, profits can be dampened in the short term.
That dampens the share price and provides a good entry point.
Emerging Market Analyst, New Frontier Investor