Morningstar Investor users sign in here.

Markets

InvoCare’s five-star rating: looking beyond the grave times

An easing in coronavirus restrictions may unearth more value for the wide-moat funeral home operator. 

Mentioned: Auckland International Airport Ltd (AIA), ANZ Group Holdings Ltd (ANZ), ASX Ltd (ASX), Brambles Ltd (BXB), Commonwealth Bank of Australia (CBA), Cochlear Ltd (COH), National Australia Bank Ltd (NAB), Transurban Group (TCL), Westpac Banking Corp (WBC), Wesfarmers Ltd (WES)


It’s tempting to see a morbid irony in the fact that among Morningstar’s 11 “wide-moat” stocks—those deemed to have a 20-year competitive advantage—the most undervalued is funeral home operator InvoCare (ASX: IVC).

InvoCare’s network of funeral homes, cemeteries and crematoria spans Australia, New Zealand and Singapore. This network, which includes its flagship brand, White Lady Funerals, comprises more than 290 funeral locations and 16 cemeteries and crematoria, and in Australia, it is the market leader, boasting a share of about a third.

If anything is hurting InvoCare in these times, it’s not the number of deaths in Australia attributed to the coronavirus (92 at lunchtime on Friday) but rather the ban on large gatherings. Since the lockdown measures were imposed on 23 March, InvoCare has fallen by about 15 per cent whereas the ASX200 has risen by about 16 per cent. It rose half a per cent on Friday, defying a 5 per cent plunge in the broader market.

moat

 

Morningstar’s 11 'wide-moat' stocks are those deemed to have a 20-year competitive advantage

It’s since deferred its dividend and has embarked on a $200 million raising to shore up the balance sheet.

“Social distancing measures due to COVID-19 are leading to lower case averages as smaller funerals weigh on pricing,” says Morningstar analyst Mark Taylor. “However, there is little impact to case volumes, as number of deaths are broadly following long-term averages.”

Whether the nation’s undertakers are shovel-ready remains to be seen but government murmurings about an easing of lockdowns may perhaps enliven InvoCare management. You can find out Taylor’s thoughts on the share purchase plan here.

Looking at the Morningstar 11 more broadly, InvoCare is in the half that carry a medium uncertainty rating (along with, in order of most discounted, Auckland International Airport (ASX: AIA), Brambles (ASX: BXB), Transurban (ASX: TCL), Wesfarmers (ASX: WES), ASX (ASX: ASX) and Cochlear (ASX: COH).) The big four banks, which round out the Morningstar 11, now carry high uncertainty ratings in light of the near-term volatility.

Speaking of banks, Morningstar analyst Nathan Zaia says that while the near-term picture is grim, NAB (ASX: NAB) looks undervalued—as do CBA, WBC and ANZ—and that investors should consider its entitlement offer. 

Emma Rapaport picks the bones out of Sharesight, our online portfolio-tracking affiliate, to reveal what retail investors have been up to. Google Trends shows the term “buy shares” has been clogging up the search engines of Australian internauts, and Rapaport finds that bear-themed ETFs and blue chips have garnered interest during the volatility.

Glenn Freeman looks for value among retail shares and examines the hit to travel and leisure stocks; Nicki Bourlioufas measures the future of the housing sector and that of waste management play Bingo to see how it’s holding up; and Morningstar healthcare strategist Karen Andersen explains why she has increased her fair value estimate for the wide-moat pharmaceutical company Gilead Sciences.

Elsewhere this week, in Firstlinks Graham Hand explores why patience in equity investing is usually rewarded. He has six captivating charts that show how often investors will lose capital in any year in Australian equities, but also how the long term usually delivers good outcomes.

Hand also looks back at a compelling 2008 article by Motivated Money’s Peter Thornhill to prove that from an investing perspective this crisis is “precedented”.

And finally, Peter Warnes makes the case for sticking on the sidelines rather than banking on hope and argues a V-shaped recovery looks nigh on impossible.



© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

Market Index Performance | November 2023
Markets

Market Index Performance | November 2023

Our monthly update detailing the short- and long-term performance of major indices.
Global Markets Report - 8 December
Markets

Global Markets Report - 8 December

ASX set to open lower, while tech stocks drove US benchmarks higher overnight.
Resist doomism: How investors can address climate risks here and now
Markets

Resist doomism: How investors can address climate risks here and now

Three ways to consider climate’s role in your investments, Morningstar CEO says.
Global Markets Report - 7 December
Markets

Global Markets Report - 7 December

ASX set to open lower after broad selloff on Wall Street, US treasuries continue to decline.
Global Markets Report - 6 December
Markets

Global Markets Report - 6 December

ASX set to open higher, while US stocks continued to pull back from their late-November rally.
Global Markets Report - 5 December
Markets

Global Markets Report - 5 December

ASX set to open lower, after all three major US indices lost ground.