The title may sound rather morbid but, as the saying goes, death (and taxes) are the only true certainties in life. Investors should realise that there is a burgeoning industry that caters to death care (as many populations start to age) and demand for death care services has been growing over the years.
As families become more affluent, many are also willing to spend more to send their loved ones off. There are also a plethora of options on how relatives may wish to handle the dead, and investors may be surprised to learn that there are even different price tiers available depending on the type of service and how comprehensive it is. Here is a look into how this industry operates and also the metrics to monitor if you’re thinking about investing in it.
Death is a certainty but business is not
For death care companies, investors may make the mistake of assuming that since everyone eventually dies, this means that business is “guaranteed” for companies within the industry. While death is definitely a certainty, there is no sure thing when it comes to tapping into this trend, as companies face competition within this industry too.
Investors need to assess the competitive edge which a company claims to have, in order to be able to attract current and future customers. Here, the Porters Five-Forces analysis works well, and investors also need to dig around for more information on each company to assess business prospects.
Fees and breadth of services
Larger companies are able to offer a wider breadth of services for the bereaved, and this includes options such as burials, cremation, selection of burial plots and also reservation of niches in “prime” locations. Some companies have been known to sell niches for thousands of dollars by promising a “premium” space. The fees charged should be reviewed to determine if they are sustainable and competitive, as over-charging is a common practice in this industry and may lead to negative sentiment regarding the company.
Another advisable source of research is the population demographics of a particular city, country or region in which the company operates. This refers to age-demographics (if there is a larger proportion of older people, it would indicate good potential future business) as well as income-demographics (i.e. families who can afford to spend more on the bereaved).
Investors need to remember that what they seek would be year-on-year increases in the number of deaths, as this is a metric that determines the revenue (and profit) generated by the business. If the number of deaths is constant or declining, or if other competitors muscle in to take business away, then the company may not have bright prospects.
Finally, investors need to find out the capital expenditure (capex) plans of the company. This is to determine if it would be able to generate healthy free cash flow for the payment of dividends, and also to assess if such capex would allow the company to grow its breadth of services offered.
Examples of capex may include the construction of a new crematorium or columbarium, and investors need to read about the length of time for construction and the amount to be committed. It is also important to assess the increase in capacity for niches or number of cremations to estimate the impact on revenue and profit numbers.
Death care companies
Unfortunately, the Singapore stock market does not have any listed death care company for investors to consider. However, there are a few such companies listed on other stock exchanges – some examples include Dignity PLC (LON: DTY), InvoCare Limited (ASX: IVC) and Fu Shou Yuan International Group Ltd (HKG: 1448).
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.