For much of 2017 things were fine for the funeral firm. Opening at £24.50 the stock largely traded either side of £25, with a couple of spikes towards £27.50. That began to change at the start of August, before truly going off the rails in November as it warned of an ‘increasingly competitive environment’. All this eventually led Dignity to close out 2017 at £18.17, completing a near 26% decline year-on-year.
Any hopes that the situation would improve in 2018 were quickly dashed with the firm’s mid-January update, a statement that sparked a truly astonishing 49% single session plunge. Though it claimed its full year figures would be ‘in line with market expectations’, news of a more competitive pricing structure sent the shares off a cliff.
Dignity will now charge £1995 for a ‘simple’ funeral in England and Wales, a 26% drop on the previous cost, and £1695 in Scotland, marking an even larger 37% reduction. The company expects these changes, which takes the cost of the firm’s most basic offering level with that of main rival the Co-op, to result in the service becoming 20% of all funerals performed, up on the previous 7%. The price of its traditional funeral, meanwhile, will be frozen at £3800.
CEO Mike McCollum admitted that the ‘short-term financial consequences’ of this shift in strategy are ‘painful’ – so painful, in fact, that analysts at Numis calculated it would cause a £50 million hit to 2018’s EBITDA.
In terms of Wednesday’s annual results, investors will be looking for figures to match those reported for the half year and Q3, meaning revenue expectations will stand at around a 6-7% increase, with a 5-7% rise in underlying operating profit. Any guidance for 2018, and an update on current trading, will also be welcome.
Dignity PLC (LON:DTY) has a consensus rating of ‘Hold’ with an average target price of £24.17.
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