- Swings to first-half loss
- Normalised death rate post-pandemic and pricing and product mix blamed
- Long-term plan to grow market share
Funerals provider Dignity (DTY) got a frosty response from investors as it swung to a large first-half loss.
Its shares fell 8.5% to 362p, paring earlier double-digit losses, as it posted a pre-tax loss of £156 million for the six months to 1 July 2022 compared with a pre-tax profit of £50.5 million for the same period a year earlier.
Underlying operating profit was down from £37.8 million to £14.7 million year-on-year, revenue was down 12% to £166.9 million. The worsening performance was attributed to a return to more normal death rates following the Covid-19 pandemic and reductions in prices.
Dignity has been pursuing a turnaround strategy, guided by specialist investment trust Castelnau (CGL) whose manager Gary Channon briefly served as the company’s chief executive, of reducing prices to gain market share and addressing previous underinvestment in the business.
There has also been the further complication of responding to the FCA beefing up regulation for pre-paid funeral plans.
A LONG-TERM PLAN
You can read more on Castlenau’s plan for Dignity in this article. This was always going to involve lower profit in the short term. For now the market seems unconvinced by the recovery story but it should probably be judged on a longer timeframe.
AJ Bell investment director Russ Mould commented: ‘To quote the phrase “nothing is certain in life except death and taxes”, a funeral operator like Dignity should be a reliable business. However, a turbulent few years has offered investors in the business precious little certainty.
‘Apparent sharp practice has been jumped on by regulators and competition in the market has affected margins.
‘Today’s results show that recent efforts at a turnaround at the group will require further patience from investors as it disappointingly swings to a pre-tax loss.
‘This does reflect a normalisation of the market in the wake of the pandemic, but it is not a great sign that it required such an extraordinary sequence of events to be profitable in the first place.
‘Dignity needs to offer a greater weight of evidence that its strategy of sacrificing profit today for market share gains in the future is paying off.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Tom Sieber) owns shares in AJ Bell.
