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di Giancarlo Nicoli

StoneMor Partners L.P. (STON), together with its subsidiaries, engages in the ownership and operation of cemeteries in the United States. As an MLP, it has units and not shares, and it declares distributions and not dividends.

StoneMor is the second largest owner and operator of cemeteries in the US. The Company currently operates 273 cemeteries and 70 funeral homes, diversely located across 28 states and Puerto Rico.
StoneMor has demonstrated a consistent track record of growth and financial performance. Revenue has increased from $145 million in 2007 to $197 million in 2010. For the period, Compounded Annual Growth Rate (CAGR) is 12%. Also, adjusted operating profits have increased from $26 million in 2007 to $38 million in 2010. For the period, CAGR is 15%. (Source: Company website). In other words, earnings grow faster than revenues.

How does StoneMor do that? Basically, STON buys cemeteries and funeral homes and then – thanks to scale, experience, management, standard processes – it increases their efficiencies. It squeezes more earnings out of existing business and improves business turnover as well.

It weathered well the 2008 crisis (chart courtesy Yahoo Finance):

Stonemor kept increasing the reward to its unitholders. On May 2, 2007, for example, it declared a quarterly cash distribution of $0.50. Almost five years later, latest distribution (Nov 2, 2011) was $0,585.

StoneMor needs money to finance its growth, since it makes more sense to borrow money at a lower rate than it is able to make out of acquisitions.

It recently announced that it has received from its senior bank syndicate a revised and increased credit facility which will facilitate the growth of its business, including future cemetery and funeral home acquisitions. The credit facility was increased by $10 million to $130 million, requires no amortization of principal, the loan term was extended until 2017, and the interest rate was reduced by eliminating the LIBOR floor. The fixed charge coverage ratio was eliminated and replaced by a debt service coverage ratio which provides the company with enhanced flexibility.

A revised and increased credit facility means STON will be able to fund more acquisitions, improve those businesses and grow again. It is good news.

StoneMor currently (it closed @ $26.07 on 01/20/2012) yields 9.30%.

Disclosure: I am long STON.


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