Dignity performs in line as death rate remains flat

Funeral and funeral-related services provider Dignity announced its preliminary results for the 52 weeks ended 29 December on Wednesday, with both revenue and underlying operating profit rising 3% to £324m and £104.6m respectively.

The FTSE 250 firm said underlying profit before tax was also ahead 3% at £77.8m, while underlying earnings per share were up 7% at 128.3p.

Cash generated from operations fell 5%, however, to £115.4m.

On a statutory basis, operating profit was slightly ahead of the prior year at £98m, compared to £97.7m, while profit before tax was flat at £71.2m.

Basic earnings per share were 115.8p, up slightly from 115.3p a year earlier.

The board confirmed a 10% uptick in the interim dividend paid in the period to 8.64p, but kept the final dividend level at 15.74p.

Dignity said its financial performance remained in line with market expectations, while the number of deaths during the period was flat at 590,000.

It said its focus remained on customer service, which continued to be high with 98% of clients saying they would recommend the firm.

The company also expanded its portfolio during the year, through the acquisition of 24 funeral locations and one small crematorium, with total acquisition activity of £28.3m net of cash acquired.

Dignity also reported “another good year” of pre-arranged funeral plan sales, with active pre-arranged funeral plans increasing to 450,000 from 404,000, which the board said was helped by trust and insurance based sales.

“We are the only business with a national network of funeral and crematoria locations, giving us a unique position in the evolving funeral market,” said chief executive Mike McCollum.

“Following the trading update in January 2018, we have now begun a new chapter for Dignity and for the funeral business in particular.”

McCollum said the ‘new chapter’ did not change the board’s focus on excellent client service, which remained core to how the company operate.

“We will also continue to demonstrate industry leadership by seeking the regulated market that will be good for clients and society and which plays to our strengths as a compliant and well managed business.”

Panmure Gordon was quick to react to Dignity’s results, saying they showed positive news on two of the three main drivers for 2018, adding that substantial consensus upgrades could be on the horizon.

It noted that Dignity said the run rate for simple funerals, compared to total funerals, in the seven weeks since its price cut, was at 15% - five percentage points better than initial expectations.

“[We] estimate every one percentage point better than those original expectations will add around 3% to 2018 earnings estimates,” said Panmure Gordon analyst Michael Donnelly.

Donnelly also pointed to the 7% growth in the total number of deaths in first two months of 2018 year-on-year, which was better than Panmure’s expectation for a modest decline.

“We can see how substantial upgrades to 2018 earnings consensus forecasts may be deliverable in due course,” Donnelly said.

“But, [with] limited detail on cost reduction initiatives, expect more on this in May trading update.”