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Johannesburg - The business of death, on the face of it, is certainly attractive in terms of steady demand. How attractive we can’t say, because the providers of funeral services haven’t really relished the prospect of operating as public companies.
So ITAL Finweek END ITAL was intrigued by a prospectus for Avalon Memorium Investments 1 – a venture aimed at consolidating various funeral service operations after raising first tranche capital of R32m.
There’s some choice deathly prose in the prospectus, such as: “As sad as it may be, the harsh reality is that people will not cease to pass away… a company offering an affordable burial alternative without compromising on the dignity of the process could actually benefit from a worsening inflation rate.”
Add d to that, there’s a critical shortage of burial space and a growing mortality rate in South Africa: 1m deaths/year.
So a company offering a crematorium concept offering with more than 150 000 burial niches might well seem a workable and profitable proposal.
Executive Daniel Schubert says there are no immediate plans for a JSE listing. He notes getting the prospectus ready was a “massive undertaking” that took more than five years to prepare. However, prospective investors should get some insight into the business of “providing effective interment for deceased remains” as a company with public shareholders does need to publish audited financial statements.
Marketing material issued by Avalon suggests shareholders will be entitled to four sources of proportional dividends:
* The day-to-day funeral business (projected at more than R4m over the next six years).
* The administration of 48 000 niches at the Bloemfontein Memoriam (fixed at R12m/year).
* Franchisor income from the five or more Avalon Funerals Franchises projected to be established over the next five years (not quantifiable, but “it’s certainly worth several million”).
* The income from Avalon Funerals (projected to be between R200m and R350m over the next 25 to 35 years).
The prospectus suggests the expected capital growth on an investment is an average 20% “simple growth per annum” over the investment period of six years (which is stipulated as the minimum investment period).
That’s a damn fine return in anyone’s books. However, there’s one hitch. It’s a projection – unfortunately – that can’t be backed by historical trading figures. While ITAL Finweek END ITAL found the Avalon prospectus refreshingly sanitised of the usual hype that accompanies so many fund-raising efforts by unlisted companies, the projection of such attractive returns can’t be quantified in the document.
Avalon is scarcely a year old, hasn’t traded prior to the issue of its prospectus and (as the prospectus openly notes) “has not made any profits whatsoever”.
Cutting to the chase, Avalon is effectively asking public investors to fork out funding with which it will develop funeral operations in Bloemfontein, Durban and Cape Town. To make that investment you have to trust the directors when they argue: “All acquisitions and developments will have an inherent value greater than the cost of the developments.”
We note the soon-to-be acquired Avalon Memoriam Bloemfontein is a going concern that – according to the prospectus – provides the company “with an infrastructural base…” Schubert says Avalon didn’t want to present standalone trading figures for Bloemfontein because the operation will form part of a larger structure incorporating Durban and Cape Town.
Basic numbers in its business plan suggest 158 000 niches being sold at R3 600 each, which will generate a total of around R569m over the next six years.
While most readers would probably agree the prospectus presents an interesting concept without historic trading figures (albeit for nine months) and other audited figures it’s really difficult to make a call. Only time will tell whether Avalon – which will only report audited financials a full 12 months after closing the first prospectus – is buried treasure or just a hole in the ground.
* This article was first published in Finweek.
* To read more Finweek articles, click here.
So ITAL Finweek END ITAL was intrigued by a prospectus for Avalon Memorium Investments 1 – a venture aimed at consolidating various funeral service operations after raising first tranche capital of R32m.
There’s some choice deathly prose in the prospectus, such as: “As sad as it may be, the harsh reality is that people will not cease to pass away… a company offering an affordable burial alternative without compromising on the dignity of the process could actually benefit from a worsening inflation rate.”
Add d to that, there’s a critical shortage of burial space and a growing mortality rate in South Africa: 1m deaths/year.
So a company offering a crematorium concept offering with more than 150 000 burial niches might well seem a workable and profitable proposal.
Executive Daniel Schubert says there are no immediate plans for a JSE listing. He notes getting the prospectus ready was a “massive undertaking” that took more than five years to prepare. However, prospective investors should get some insight into the business of “providing effective interment for deceased remains” as a company with public shareholders does need to publish audited financial statements.
Marketing material issued by Avalon suggests shareholders will be entitled to four sources of proportional dividends:
* The day-to-day funeral business (projected at more than R4m over the next six years).
* The administration of 48 000 niches at the Bloemfontein Memoriam (fixed at R12m/year).
* Franchisor income from the five or more Avalon Funerals Franchises projected to be established over the next five years (not quantifiable, but “it’s certainly worth several million”).
* The income from Avalon Funerals (projected to be between R200m and R350m over the next 25 to 35 years).
The prospectus suggests the expected capital growth on an investment is an average 20% “simple growth per annum” over the investment period of six years (which is stipulated as the minimum investment period).
That’s a damn fine return in anyone’s books. However, there’s one hitch. It’s a projection – unfortunately – that can’t be backed by historical trading figures. While ITAL Finweek END ITAL found the Avalon prospectus refreshingly sanitised of the usual hype that accompanies so many fund-raising efforts by unlisted companies, the projection of such attractive returns can’t be quantified in the document.
Avalon is scarcely a year old, hasn’t traded prior to the issue of its prospectus and (as the prospectus openly notes) “has not made any profits whatsoever”.
Cutting to the chase, Avalon is effectively asking public investors to fork out funding with which it will develop funeral operations in Bloemfontein, Durban and Cape Town. To make that investment you have to trust the directors when they argue: “All acquisitions and developments will have an inherent value greater than the cost of the developments.”
We note the soon-to-be acquired Avalon Memoriam Bloemfontein is a going concern that – according to the prospectus – provides the company “with an infrastructural base…” Schubert says Avalon didn’t want to present standalone trading figures for Bloemfontein because the operation will form part of a larger structure incorporating Durban and Cape Town.
Basic numbers in its business plan suggest 158 000 niches being sold at R3 600 each, which will generate a total of around R569m over the next six years.
While most readers would probably agree the prospectus presents an interesting concept without historic trading figures (albeit for nine months) and other audited figures it’s really difficult to make a call. Only time will tell whether Avalon – which will only report audited financials a full 12 months after closing the first prospectus – is buried treasure or just a hole in the ground.
* This article was first published in Finweek.
* To read more Finweek articles, click here.
