The S&P/ASX 300 Index (ASX: XKO) stock Propel Funeral Partners Ltd (ASX: PFP) may not be the largest business on the ASX, but it's benefiting from some of the strongest tailwinds in Australia.

Propel is the second largest provider of death care services in Australia and New Zealand. Its operations include funerals, cemeteries, cremation services and related assets.

Fund managers Ed Prendergast and Steve Black from Pengana Capital Group Ltd (ASX: PCG) revealed that the funeral business is one of the largest positions in the portfolio they manage, according to reporting by the Australian Financial Review.

Let's look at why the Pengana team like this ASX 300 stock.

Factors supporting Propel shares

The Pengana team say they like to find non-cyclical companies when investing, explaining that it's attractive if earnings aren't likely to be "thrown around by the vagaries of the economic conditions" of the time.

The investment duo suggest the ASX 300 stock Propel has "inbuilt growth" with Australia's ageing population, so there is a natural increase in the rate of deaths in Australia, which has accelerated in the last two or three years. While it's not certain there will be growth every single year, the trend is "definitely up".

Propel often points to projections from the Australian Bureau of Statistics (ABS) that death volumes are expected to increase by 2.5% per annum between 2024 to 2030 and then 2.9% per annum from 2030 to 2040.

Pengana's Prendergast points out that with a market share of 8% (though Propel estimated its market share at around 9% for 2023), there is plenty of room for Propel to grow, partly just by making steady, sensible acquisitions. Prendergast said:

Propel can access finance through people like us and the banks, so they've got scale and access to capital that they can buy private players at very favourable pricing.

During FY24, the business completed or announced acquisitions for a total value of approximately $104 million across 12 transactions which could bring in around $43 million of revenue.

Another positive about the business is that management own a substantial stake in the business, representing around 14% of Propel shares.

The company is also benefiting from a steady increase in the average revenue per funeral, reaching $6,635 in FY24, up 4% year over year. The average revenue per funeral has increased at a compound annual growth rate (CAGR) of approximately 3.2% since FY15.

Trading update

At its AGM, the ASX 300 stock revealed a promising update for the first quarter of FY25. It made $61.5 million of revenue (up 16% year over year), its operating profit (operating EBITDA) grew by 15% to $16.5 million, funeral volumes rose by 13% to 6,150, and average revenue per funeral increased by approximately 3%.

Propel share price snapshot

Since the start of 2024, the Propel Funeral Partners share price has climbed by 14%.