I have sold my holding in PFP.

I think this roll up is heading where all roll ups end up - chasing increasing revenue with lower quality acquisitions and hence a poorer business, as evidenced by the decreasing EPS and margins. It's entirely possible i have headed for the door too soon: it's a great defensive business immune to business cycles, macro-economics and geopolitics. But the thing about roll-ups is that you don't know when the model starts to fail until it's too late, unless you're a lot cleverer than I am. Its done ok for me, Im not complaining but I think these funds can be re-directed elsewhere more profitably.

Here is a summary of the FY25 results with Perplexity's pros and cons

Propel Funeral Partners (ASX: PFP) delivered an FY25 result that surpassed guidance, with revenue and operating EBITDA both reaching record highs despite headwinds from a contraction in industry death volumes in the second half. The board maintained the dividend, and the group demonstrated solid acquisitive growth, strong cashflow, and a conservative balance sheet. However, operating margins fell, and organic funeral volumes were slightly down.

FY25 Results Highlights

• Revenue grew to $225.8 million (+7.9% YoY), beating guidance.

• Operating EBITDA rose to $56.2 million (+1.4% YoY), also ahead of guidance.

• Operating NPAT was $21.6 million (+2.2% YoY).

• Operating EPS fell to 15.7 cents (-6.8% YoY).

• Total dividends held steady at 14.4 cents per share fully franked, with a payout ratio of ~93% of Distributable Earnings and a grossed-up yield of ~4.5%.

• Funeral volumes rose 4.4% YoY to 22,602, but organic volumes declined slightly (-1%).

• Average revenue per funeral rose 2.3%, in line with inflation.

• Cash flow conversion was strong at 102.2%.

• Gearing sits at ~27%, with net leverage at 2.1x (vs. a 5.0x covenant).

• Funding capacity is robust at $143 million available.

• Three acquisitions completed for ~$13 million, plus ongoing industry roll-up strategy.

Pros for Further Investment

• Defensive sector exposure: Funeral services remain a non-discretionary, low-cyclicality industry, making Propel a defensively positioned stock.

• Strong cashflow and balance sheet: High cash conversion, conservative gearing, and ample liquidity support further acquisition-driven growth and dividend sustainability.

• Consistent capital returns: High payout ratio and fully franked dividend are attractive for income-focused investors.

• Ongoing industry consolidation: Highly fragmented market presents ongoing roll-up and scale efficiency opportunities.

• Proven acquisition capability: Management continues to execute on accretive transactions without over-leveraging.

• Demographics: Ageing population in Australia/NZ supports underlying demand tailwinds.

Cons for Further Investment

• Margin pressure: Operating EBITDA margin fell from 26.5% to 24.9% (-160bps), possibly due to competitive intensity, cost inflation, or acquisition integration drag.

• Modest organic growth: Comparable funeral volumes declined -1% after prior-year contraction, partially offset by acquisitions; structural organic volume growth remains limited.

• EPS decline: Operating EPS decreased (-6.8%), despite NPAT growth, reflecting dilution or weaker profitability per share.

• Reliance on acquisitions: Growth is increasingly acquisition-led; integration risk and acquisition “roll-up” fatigue are relevant in the longer term.

• Sector sensitivity to death rates: Volumes are influenced by short-term fluctuations that can affect earnings, as seen in the 2H25 industry contraction.

• Leadership change: Imminent CEO transition introduces short-term execution and culture risk.

Conclusion

Propel offers a solid, defensive yield with credible growth through industry consolidation. Near-term growth is likely to remain acquisition-dependent until organic volume trends firm up and margin pressures abate. The group’s robust financial position limits downside risk, but watch for signs of sustainable organic growth, improving margins, and smooth executive transition to justify further investment at premium multiples.

And indeed, things are reverting to the mean (see very stale bull case post)

in summary more funerals (muddy waters due to acquisitions) but also 6% revenue more per funeral

Still very much in acquisition phase

  ASX ANNOUNCEMENT

12 October 2022

Trading Update – Q1 FY23

Propel Funeral Partners Limited (ASX: PFP) (Propel or Company) announces that its operating and financial performance for the three months ended 30 September 20221 was materially above the prior corresponding period (PCP), reflecting strong seasonal trading conditions and organic growth, combined with contributions from acquisitions.

In Q1 FY231, Propel:

– generated revenue of ~$44 million, up ~33% on the PCP;

– achieved Operating EBITDA2 of ~$13 million, up ~40% on the PCP and reflecting a margin of ~30% (PCP: ~28%);

– maintained strong Cash Flow Conversion2;

– performed a record number of funerals in a quarter, up ~23% on the PCP, including material growth in comparable funeral

volumes on the PCP; and

– experienced a higher mix of full service funerals compared to the lockdown impacted PCP and FY22, which contributed to

Average Revenue Per Funeral2 growth of: • ~9%onthePCP;and

• ~6%onFY22.

The Company’s Q1 FY23 trading:

– included full period contributions from six acquisitions completed during FY22; and

– did not include contributions from two new acquisitions announced3 in Q1 FY23, which are expected to complete during Q2 FY23.

Death volumes can fluctuate over short time horizons, so caution is required when extrapolating historical data to forecast potential future

Propel had a pretty good report.

despite COVID and all the restrictions around people congregating, including funerals, their margins improved .....marginally  (ahem)

Profit and revenue both increased substantially but much of this is acquisition and debt funded. Like IVC, Propel stand to benefit from long term consolidation of the funeral industry and seem to be executing along these lines pretty effectively and have low costs of funding.

They might be paying out a bit too much in dividends (yield ~4%) IMHO, with debt increasing significantly -which might be appropriate given the model.

The reason for optimism, though, is the resolution of COVID and the reurn of influenza. Morbid as it is, death rates this year have been below trend, due to everyone wrapping t hemselves in cotton wool and refusing to go outside. Influenza rates have collapsed - this is the graph for where I work  ie nothing! As people get out and about, this will revert to the mean, and indeed, ther is a good argument to suggest that mortality rates will be higher than previous years (lots more elderly will die from 'flu than usual).

I suspect PFPs margins and total transaction volume to both improve significantly as a result for a couple of years. 

It is not overly expensive (PE ~ 20) and highly defensive as a business (death and taxes!)

I have a small holding