Shares in listed funeral directors Dignity (DTY) have surged nearly 20 per cent since the start of the year as expectations of higher growth rates follow the £58.3m acquisition of 40 funeral homes under the Yew brand in the North of England. Despite the shares reaching record highs, and trading on a forecast PE ratio of 19, we retain our buy as the bonus of cash returns to shareholders remains on the cards if Dignity taps the debt markets in the year ahead.
Trading is strong with official estimated death rates in Britain up by 12,000 to 551,000, and as Dignity increased the cost of the average funeral by over 6 per cent to nearly £2,500 and increased its number of funerals by 900 to 63,200, and cremations up 2,900 to 50,500, underlying operating profits were up 8 per cent to £69.4m. Revenue visibility also improved with the number of pre-arranged funerals up 9 per cent to 290,000.