News that the Competition and Markets Authority (CMA) intends to investigate the cost of funerals has prompted a sharp sell-off in Dignity (DTY) shares. The funeral provider welcomed the review, said it would share evidence it had collated to support "the calls for regulation we have been making for some time", and confirmed it would work with the CMA to ensure customers “get the best service and choice of pricing”.
In a separate action, the Treasury plans to investigate prices of pre-paid funeral plans to ensure that relatives of the deceased are not faced with extra costs. By comparison, the CMA review will focus on more general costs across the funeral sector, including cremation fees. The competition authority is concerned that, during what tends to be an emotional time, customers are not made fully aware of all costs and services before purchasing a funeral plan.
Price wars within the funeral sector are not new, as increasing numbers of low-overhead providers set up shop online. Dignity admitted as part of a January profit warning that it would be forced to cut the price of some of its funeral plans by up to a quarter to remain competitive.
This prompted a sharp de-rating in Dignity shares, which lost half of their value in a single day’s trading. However, annual results released in March proved that this strategy had helped to stem the decline in Dignity’s market share, which prompted the stock to bounce back. Of course, a faster-than-expected death rate so far this year is also helping, as is Dignity’s usual pursuit of acquisitions.
