Dignity slumps as funeral company cuts earnings growth rate

Shares in Dignity slumped on Wednesday as the funeral service provider cut its underlying earnings per share growth rate for 2017 due to increasing competition in each of its markets.

The company revised its medium-term EPS target to 8% per year from 10%, citing the increased size of the group and increasing competition in each of its markets,

It said that competition had increased, particularly in funerals and pre-arranged funeral plans due to the these industries being unregulated which had encouraged new entrants.

The revised target included the reinvestment of cash generated by the business and the company's ability to re-leverage its balance sheet to fund acquisitions or return capital to shareholders.

Chief executive Mike McCollum said that he anticipated further engagement with the British and Scottish governments for regulation of the funeral and pre-arranged funeral markets to "ensure every family receives minimum standards of care from appropriate facilities".

“We also expect to invest more in digital technologies that will help our clients and also act as a source of new business for the group," he said.

Meanwhile, full year revenue increased in 2016 by 3% to £313.6m after a higher number of deaths than initially anticipated. Underlying operating profit rose 3% to £101.7m and pre-tax profit was up 4% to £75.2m.

Active pre-arranged funeral plans increased to 404,000 from 374,000 aided by insurance-based sales.

This resulted in a 4% rise in underlying earnings per share to £119.8m, while the basic earnings per share was unchanged at 115.3p. Cash generated from operations fell 3% to 121m

The FTSE 250 company declared a final dividend of 15.74p, up 10% from 2015.

The number of deaths was higher last year than the company originally anticipated to 590,000 from 580,000 following a significant increase in the number of deaths in 2015, while it said that historical data suggested that deaths in 2017 could be “significantly lower” than 2015 and 2016.

George Salmon, equity analyst at Hargreaves Lansdown, said: “A lower mortality rate in 2017 may be good news for the population at large, but for funeral service provider Dignity, this is likely to mean a slowing of business. Combined with the fact that the pace of market share losses has increased, it’s easy to see why full year results haven’t been taken well by the market, with 13.4% coming off the share price.”

Shares in Dignity were down 13.57% to 2,396 at 0836 GMT.