Yoyo it up and down to generate volume but the simple fact applies.
It reminds me of Simon Wolfson at Next and the way they handled a pending profit warning about a year back. They drew a line under it by painting the worst possible scenario and unsurprisingly it was never that bad and it then rose back up and retrieved some of the fall.
Dignity have announced a tinkering with freeze on prices for the higher end funerals which is not a bad thing if you ask me and also a tweak with one part of the business to make it more competitive on basic funerals and to directly target competition. Reduce the price of the basic funeral for that purpose and you can expect a double whammy as it will be a more appealing price for those on a budget and you will sell more. What is 7% of the business they expect may grow to 20%. It's an increasingly ageing population and we all pass away one day.
Its being played presently with mini treeshakes so I'd be topping up on the dips just as I suspect someone else is then its a sit back and wait and watch.
FY dividend for the year end of 31/12/17 I think should also be paid, if not all then substantially.
I'm sticking with the Shares article and Investec's £12.75
A few years ago Dignity announced they had taken over the running of Hackney Council's Crematoria. I thought that sounded like an eminently sensible move and, if successful, should lead to other councils following suit; but I've never heard the contract mentioned since.
Does anyone know anything about it?
Of course, with the collapse of Carillion & a potential Corbyn lead Government which believes that every business in the UK should be nationalised, it may not look should a good strategy now.
"Is the debt mostly relating to acquisitions, thus net assets are also increasing?"
I'd have to do a lot of digging over results to give a confident answer; but I can tell you; at the end of 2012 Net Debt was £300m; and they had 636 funeral parlours and 37 Crematoria. At the interims last June net debt was up to £521m; and they had around 800 funeral parlours & 44 crematoria.
Is the debt mostly relating to acquisitions, thus net assets are also increasing? What is the velocity of the debt as I would hope they're not continuing to pile it on when there is some risk to service the existing?
I've just listened to this - thanks for posting it, Old Punter - and I am more inclined to think Old Punter's way than Pyueck. It is reassuring; and the debt levels which are horrendous, are, as Old punter points out, on excellent terms.
To say Mike McCollum is not sorry and accusing him of greed when he's just lot the best part of £100k in value of his holdings in a day does not make sense; because if he's greedy he will be sorry he's lost himself £100k.
I'm more inclined to think this is a good entry point than a bucket case on the way out; but I want to see some director buys; and am pretty furious at ii losing their news flow at this critical time.
Pyueck, you made an excellent point about the directors' remuneration; but now you've made it, let's try and concentrate on working out the future direction of the business. I don't know how much of their remuneration is bonuses, but I am sure it will fall this year; and a letter to the remuneration committee (is you are a shareholder) would be appropriate as you feel so strongly. I may well join you. I felt your response to the analysts call was biased by your anger at the level of director remuneration, such that you were not trying to work out how good or bad the future was.
(As I say to chartists) We are way we are. How we got there is not really important, only where we are going.
I was disappointed in the call, that MM still said we'd be updated on how the strategy is going at the Interims. At the time of the finals the renewed policy will have been in place for a month & a half; and we usually get a Q1 update in May. Surely they will be in a position to give us some feedback at that time.
Great post from last September. Overlooked at the time but now in retrospect bang on the money. https://www.google.co.uk/amp/s/seekingalpha.com/amp/instablog/48719259-james-funeralbooker/5043331-reaper-calls-dignity
I agree with you about over-remunerated directors but this is hardly an isolated example. Perhaps reprehensibly, I am only interested in whether I make a buck out of the shares. You say they are overvalued, I am guessing otherwise, time will tell who is right, and I won't be surprised if I am wrong, too much experience of that I have to say.
You mention Carillion, I have learnt from bitter experience its sensible to avoid companies with weak balance sheets, I looked at it a few months ago but avoided thankfully for that reason.
If a share falls 50% on a setback and the business is basically profitable and has a reasonable balance sheet, as I think is the case with DTY (its high borrowings are at a fixed and favourable rate), I reckon the odds are heavily stacked in favour of a buyer of the shares. I think that was the case with DTY and it is still not far off 50% down if one takes the price of 962p as Friday's close.
I listened to that, sorry but came to different conclusion. The market hasnt changed, what changed was that management decided to sell a basic product at 25% above the leader in the market (co-op). Basically they screwed up big time driven by the greed of a prop designed to line the pockets of the directors not shareholders. The ceo is not sorry, if he was sorry he would be returning some of the £2.4m he received last year, when only paying out £6.1m in dividends. Yes thats right the ceo took home more than a third of the total dividends paid to shareholders.
This is a poor and greedy management which needs replacing. Sky high remuneration bargain basement performance. The share looks overpriced and those that think it doesnt shouldnt just rely on seeing a bounce because of the size of the falls but should look at the fundamentals. If carillion taught me anything that is dont buy based on a big fall alone, look at the quality of management and corporate governance. This one is seriously lacking in both.
I have just listened to the analysts' 15 minute phone call session last Friday am (on the company website under the Investors tab), I missed that on the day. I strongly recommend anybody interested in DTY to do likewise as there is additional info to what was in the RNS, and I found it more encouraging than the RNS.
The CEO comes over well and FWIW I found him convincing. He apologised for the shock and pain to investors but argued decisive action was required to restore their strong market position and prospects.
He said customers who choose the traditional funeral product give positive feedback so no great need to reduce prices there, where they were losing business was with people shopping around for something cheaper hence reducing the price of the simple funeral to market levels, they had been too expensive vs the competition.
On finance,I think he said that they are paying out a fixed £33m pa in interest and capital over a fixed term of 35 years. He expects the EBITDA 1.5 times covenant to be amply met in 2018 as they need EBITDA of c£50m to comply.
He thought their scale meant they could be more effective digitally ie through their website, and have more to do on this, than the often tiny firms who are two thirds of the market. They are also looking at costs but it is a high fixed cost business so the priority is to increase volume.
I shall be very surprised if the directors have not been adding to their shareholdings .
I see that Motley Fool said buy on the day, not sure I take much notice of that, but I agree with the call.
I expect the shares to open higher than the reported close of 962p tomorrow but I hope they don't as I would like to buy a few if they retrace some more.
The trouble with the written word is it is often hard to recognise sarcasm.
I totally agree with you.
The point I was trying to make is that if the directors believe they are capable of improving the fortunes of the company, then they should be buying shares like mad next week; and, as you have pointed out, they should have the money to do it.
Hardboy. So you think it's a good thing that the directors are paying themselves more than they are paying in dividends, with a remuneration policy so clearly out of sync with the interests of shareholders as the directors will have enough spare cash (money that should either have been invested in the business or paid out to shareholders) that they will be able to prop up the company???
No no no, the directors here put out an rns on Friday which in my opinion doesn't even start to touch at the issues here. Changing market...a quotation from the ons to suggest people are just not dying fast enough...it's all a big smokescreen. As I said in the previous post those are not the issues, the issues are that the company thought that it could jack up prices in an price insensitive market and they have gone too far. Check out their prices compared to the competition, all they have done with the price reductions of 25% is brought their simple funeral prices in line with co-op funerals. No wonder sales were struggling when you charge 25% more than the best known player in the market!!! Management incompetence.
The fundamentals of this company don't stack up even with the 50% fall. The p/e looks too high now that we know earnings are going to be under sever pressure and with a history of paying profits out to directors before shareholders this one seems one to bail on. That's unless somebody can buy this gravy train and get rid of the utterly incompetent and greedy directors.
Well, Pyueck, if they've all got loads of dosh splashing around, as they should have on their salaries, and if they believe they are worth their salaries, they must regard the current share price as way oversold, so they'll all be in on Monday filling their boots with loads of shares each. Watch the Director Buy RNSs flowing.
I've just checked on Digital Look (which I'm not happy with their system changes either) and 5 directors own over 0.08% of the company; but none own more than 0.18% so they have some skin in the game, but it would be good to see that increase.
DTY is financed mainly by loan notes, unusually, so provided the EBITDA covenant is met the interest rates are fixed as is maturity, as shown in the 2016 accounts, available to view on the company's website.
If the shares are on a prospective p/e of 13 at 950p, per Peel Hunt. Given that is a poor year and their strong market position and the stable "demand" for funerals, I think there could well be upside in the shares in my opinion.
Pre-arranged funeral schemes are ring fenced monies, the business is not allowed to use them for their own purposes and in any case it's insurance companies that provide the cover here and take the deposits. So you are scare mongering and making criminal allegations by saying directors will use it for their own lifestyle.
to be fair debt was looking challenging before this profit warning... after the profit warning two things will happen... revenues will fall and interest a will go up... would be interesting to see what is the average debt maturity ... refinancing will be quite more challenging.... all in all seems like not such a defensive stock despite the allure the funeral biz seems to induce (one should definitely separate certainty of death from certainty this company will be profiting from it handsomely) nor growth nor dividend... so why would anyone invest in it? can anyone provide a small summary on why to buy shares now?
Btw the top brass of this company shoul buy more than the same amount of shares they sold at the top ( how smart) ...may show some dignity ....and give them some credibility if they want to convince others they have a company and not a ponzi scheme.
Thanks, Peel Hunt also said the same thing about generating enough cash to pay the interest no doubt both of them told this by the company. However, the covenant formula is what it is - EBITDA multiples which are not quite the same thing. But I suspect, as I said, they will probably clear that hurdle or it might even be reset if not.
I wonder if the directors were buying shares c900p on Friday, there was plenty of opportunity to do so, daft not to in my opinion, and it would send a good signal.
If they did not buy, you may be right that that the shares could trade around current levels for a while, I wrongly expected more of a bounce on Friday than occurred. If the shares were to retrace a bit I think I might be a buyer again.
Can I suggest you read the Shares Magazine article.
"The cut in earnings forecasts will no doubt lead some investors to worry about the companys ability to service its debt. Investec says there is no reason to be concerned as even under the downgraded earnings forecasts Dignity is creating more than enough cash to service its debt.
Dignity currently believes this will increase the proportion of simple funerals it carries out from 7% in 2017 to 20% to 2018, creating a double whammy effect.
Investec, which stays at buy but more than halves its price target to £12.75, comments: We believe the new strategy effectively resets the base revenues and profits for Dignity. Yet we feel that the longer term dynamics of the funeral market are unchanged and believe the new pricing strategy should enable Dignity to maintain market share over the longer term."
folks, I am no holder in this one after some lucky escapes but for anyone that may be tempted...
they have 400k avtive prearranged funeral schemes. chances are these folks may use these as cash cow to fund their own lifestyle and create some funny short term profits in the books... someone with accountant background should look into this but it all has the nasty smell of a ponzi.
So stay very cautious on this. there is no floor to a share price other than zero, remember.
In my previous post I was expecting some more bounce from 974p, they touched £10 but seem to have lost that rise and acording to HL closed at 976p.
I decided to exit having bought lower because of the possibility that if profits halve in 2018 the company might not meet the requirement that EBITDA has to cover financing costs a minimum of 1.5 times, indeed there is another test referred to in the risks section of the 2016 accounts at 1.85 times, so the dividend could be at risk, not that there was much of a yield.
The odds are DTY will manage to pass these tests in which case I would guess the shares have further to recover, another good reason being I am now out.
Oh dear, am I the only one who actually reads annual reports. After Carillion I hope investors will join me in looking at the levels of remuneration directors get, and let me tell you Dignity makes Carillion look like a very modest affair.
I highly doubt that the funeral business has changed or become a lot more price conscious, think about the product.
What I suspect has happened is that Dignity saw the lack of price sensitivity in their sector and thought, hey let's jack up our prices, deliver the same service and make more profits and bonuses for the Directors. Look at the last annual report the CEO took hope £2.4m and the three other exec directors over £1m each! Its getting on for £7m in total for the top four directors alone, that's about 10% of pre-tax profit!!!!
In short the business is running with massive overheads, and far from delivering the efficiencies that you would expect from a group of this size, relative to their competitors, actually the profits are being creamed off by management.
Management have probably realised they have gone too far with their price rises, consumers are now balking, not because the consumer has changed but because they got too greedy. And the profits were not paid out to shareholders, oh no they have largely gone to Directors, more last year was paid out in the remuneration of the top four directors than was paid in dividends to shareholders.
Along with a review of their pricing strategy, I suggest they also need to look at how their directors remuneration is actually aligned to the interests of shareholders. For me it is completely disgraceful if the directors remuneration is running at 10% of post tax profits. And I am sure there will be no clawback of last years crazy bonus payments after today's dire trading update.
Lots of useful comments and info. The big question to me is whether the senior management in the company are responding to events or trying to shape them. If it's the former then you have to ask yourself how come they have let their competitors steal market share from them, if its the latter, then the funeral business just became more competitive, but at least they are still in the driving seat.
Either way I won't be adding to my holding for a while. At least until more info is available. It's a shame but even a so called recession proof business can still disappoint.
p.s. This is my first post. Looks like I am no longer a virgin then!
Bad luck on this one, I had a similar experience with Provi Financial last year when, what looked like a rock solid business, hit the skids after a couple of fairly minor warnings.
Using my not very accurate slide rule, based on the antcipated new mix of funeral types, the drop in price of simple funerals and the freeze in other types, it looks like eps for 2018 for Dignity are going to struggle to reach 100p, and growth is going to be tough to find
BTW they say there is a great price pressure and competitive market abut as recently as September in their half year report they say they have a business which has high barriers to entry and now they say the business is overcrowded... seriously?
sure next they will openly and honestly tell they are bust.
seriously the debt they took on is now unsustainable after banks will adjust interests to the risk a lower margin biz like this will expose them to... the reaction of the market seems fair and to some extent not yet fully consumed but there are people that think this was something to be appreciated (sorry: directors sold out at the top long time ago so they knew long time ago - think about that)
Was back in at 893p this am, 12% rise so far and more to go. I do agree the disclosure was mismanaged, there are ways and means of approaching such matters without being illegal.
Sooner or later many of us baby boomers are headed for their portals and we do seem to be actually living shorter not longer than our parents probably due to hedonistic lifestyles of the past. Drugs, sex and rock and roll , the summer of love to the pace of life today plus pollution and the worst flu outbreak for years, business is going to boom as the bulge in populace shuffles off. Guess the facts will be in predicted death rates, any actuaries on this board to give a clue?
I was thinking of investing in this after todays fall. Looked at the fundamentals, including p/e and dividend. In light of the severely negative outlook I think this one is still overpriced. Not sure why the company had the market value it did, but even with. 50% fall this one does not appeal to me.
I am aware of the disclosure obligations placed on companies and was merely referring to the basic funeral service side of things. If they were cutting the price but at the same time expecting volume to pick up from 7% to 20% then that might not have been "material" and particularly if they had done it as a trial initially and not for the full year. Does Next or Ryanair issue an RNS every time they decide to have a sale or a seat sale. That was the point I was making.
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