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Dignity suspends dividend

A drop in the death rate has impacted earnings at the funeral provider
July 31, 2019

As competition ramps up and regulation clamps down on the funeral sector, Dignity (DTY) is trying to stay ahead of the curve. A transformation plan is under way, through which the group is looking to improve its range of services, simplify its operating model and centralise support and administration. The transition is due to be completed by 2021, but the process got off to a rocky start. The group has suspended its dividend until “the current uncertain competitive environment becomes clearer”.

IC TIP: Sell at 558p

A falling death rate – albeit at a slower rate – continued to affect the group in the second quarter of the year. The absolute number was down 7 per cent for the first half, compared with 12 per cent in the first three months. Management is guiding to a £3m-£4m impact on underlying operating profits as a result, although this is dependent on the relative number of deaths in the second half of the year outpacing last year’s level.

The death rate will eventually revert to the mean, but once it does Dignity will still face a tightening regulatory environment. In June, the UK Treasury announced statutory regulation of pre-paid funerals – a market that accounted for 7 per cent of revenues last year. Meanwhile, the Competition and Market Authority’s investigation into the funeral and crematoria sector is ongoing.

Broker Peel Hunt is forecasting adjusted earnings per share of 64.8p for 2019, down from 85.7p in 2018.

DIGNITY (DTY)    
ORD PRICE:558pMARKET VALUE:£279m
TOUCH:556.5-559.5p12-MONTH HIGH:1,125pLOW: 545p
DIVIDEND YIELD:2.8%PE RATIO:23
NET ASSET VALUE:*NET DEBT:£502m
Half-year to 28 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201817538.561.48.64
201915314.923.0nil
% change-12-61-63-
Ex-div:na   
Payment:na   
*Negative shareholders' funds