After full consideration of today's announcement and after listening to the recording of the analyst briefing, and after lifting my estimate of 1st half registered deaths to 330k, I am projecting Q2 Revenue and UOP (on same basis as Q1 reported figures) to be £80Mill and £20Mill respectively.
The figures suggest that Dignity moved into April with 12.0% market share of funerals and I have assumed that they will minimally retain this share throughout the trials in Q2 - although I am hoping for a further increase in share up to 12.2%.
Projected UOP for 1st half now almost exactly as 1st half 2017 but will be achieved on registered deaths some 7% higher.
UOP can be flexed by £1.9Mill for every 5,000 registered deaths up/down on my projected 330k.
"All other divisions are operating in line with the Board's expectations as at January 2018. The crematoria division performed 19,100 cremations (Q1 2017: 18,500), representing 10.6 per cent (Q1 2017: 11.0 per cent) of all deaths. There can be a period of up to four weeks between death and the funeral service. Consequently, market share calculations over a short period such as the first quarter can be misleading."
"Construction of the Group's new crematorium in Derbyshire is complete and the location will begin operating in the second quarter of 2018. This will bring the Group's crematoria portfolio to 46, with two further locations under construction and due to open in 2019."
Trading for Q1 out this morning; and superficially it is encouraging - each of the areas of funerals is above their targeted average; but of course deaths were above the quarterly average, so that's not surprising. I suppose the good thing is the level of simple funerals is showing signs of recovering.
I did wonder if what was happening to the crematoria business. Nearly 1 quarter of their business and (unless I missed it) not a single mention. That's poor.
Gleaned from the pages of the Telegraph on 11th May
"There were 198,943 deaths in the first sixteen weeks of 2018, compared to an average of 178,778 deaths in the same period over the previous five years. The rise represents an 11.3 per cent increase on the five year average.
The weekly average for the same period was 12,434 deaths, ahead of the five year average of 11,174. The 20,215 figure is equivalent to an additional death every eight minutes throughout the first sixteen weeks of the year."
20,000 Additional Deaths? 16 weeks, 2018.
DIG's report this week could be hold 'Good' News (If any report into death could be described as 'Good')
Just had to book my mother's cremation, using an independent undertaker, about £1100 just for the cremation and about 5% higher than the price quoted to me last June when I enquired, this is in Norwich where there are 2 crematoriums both owned by Dignity. So that part of the biz seems to me likely to continue to print money, even if they are cutting prices on simple funerals.
I was buying in the 7/800p range but took my profits too early, well done those who did not given the 50% rise since then. The 1200p price is ahead of many broker estimates c1000 but what do they know.
Q1 on Monday will be interesting, if the shares came back depending on the numbers and statement I might consider getting back in.
We get 1st quarter results on Monday and of key importance to all should be the number of funerals fulfilled and the proportion that were Simple funerals. This data will indicate (1) whether Dignity is holding/increasing market share and (2) critically, whether the increase in Simple funeral volume is merely a cannibalisation of the more lucrative Traditional funeral business.
Dignity achieved GB market share in 2nd half 2017 of 11.2% and, to retain this share, will need to have fulfilled 20,600 funerals (after including 300 for NI) on the Dignity reported Q1 deaths of 181k (although my read of the ONS and NRS data suggests deaths of 182.4k).
My expectation is that they will report 21,000 funerals fulfilled (of which only around 12% will be Simple funerals) giving a GB market share of 11.4% on their 181k deaths figure with an average revenue/funeral down 5% on FY 2017.
Dignity's share of Cremations should also be marginally higher than 2017 H2.
With the stairlift company who bought £20 Million worth of Dignity at the time of the dip and at around £10 a share is up circa £4 Million for being patient and should pocket the dividend soon. That's the way to do it.
Fair play to you for calling this one right so far Bigtex.
I'd adopt a simpler model, and say that, if you strip out the effect of the increased deaths in Q1, then profits would likely have been 5 to 10% down.
That suggests that, if deaths are static ( and they likely won't be ) and sales follow the Q1 pattern, then underlying profits for the year would be between 70 and 74 million, with equivalent underlying eps of between 115 and 122p and basic eps of between 103 and 109p.
That currently ( sp is ~1025p ) means that the company is currently valued at something like 9 times possible future earnings for 2018.
Going forward, a lot now depends on whether Dignity can stop the rot, and return to growth in the next 18 to 24 months. I'm reasonably sure they can stop the rot ( ie profits for 2019 will likely be much the same, adjusted for one-offs and death rates, as for 2018 ), but whether or not they can return to growth is harder to call. If they can, then, with the divi and single-digit growth, then you could argue a case for valuing the company at 14 to 15 times expected earnings by the end of 2019, but, if they can't return to growth, then £10 or thereabouts seems like fair value.
BB ( I'm not a holder, but mildly tempted to buy back in if the price is right )
Yesterday's trading announcement helped support the underlying integrity of my financial model for Dignity but Q1 should really be viewed with great caution given the extraordinary quarterly death numbers which should be expected to moderate through Q2. I have tentatively estimated 1st half registered GB deaths at 324k (5.2% ahead of 2017) and based my projection accordingly.
Underlying Operating Profit in Q2 is projected to be roughly half the level of Q1 resulting in a half year EBITDA of around £65Mill and Earnings of £34Mill. For every 5k GB deaths above/below the assumed 324k, Earnings could be flexed by £1.5Mill.
Investec's full year EBITDA projection of £86Mill should now be reviewed upwards regardless of the many uncertainties remaining. All above numbers exclude any exceptional restructuring costs resulting from L.E.K Consulting work.
A fund in which I have a modest interest managed by Phoenix UK asset management bought a 5% interest in Dignity in the period up to the beginning of March.They have not yet disclosed their reasons,as they usually do so they may have been in the market for more, other than indicating that they had been waiting for 14 years to buy in at a reasonable price.
A lot of institutions and people have lost a lot of money in falls from £24 - £26 to £7.50 when they did not need to. They should have done this in quarterly trials across regions and didn't need to announce the digital upgrading spend.
Lets see if the institutions call for some heads to roll, particularly given some selling out prior.
Today's trading update is very welcome - as are all updates - but it is a bit of a curate's egg. Deaths are up on the quarter, but expected to be marginally down on the full year. Sales are up slightly, but profits flat. The proportion of simple funerals is below the Boards expectations. but full year profits, at this early stage, look like being above expectations. So it's like every good point has a corresponding bad point. (Isn't business always like that?)
On consideration, the most important thing for a business is profit (sanity as opposed to vanity) and the indications are this will be above expectations so on the whole I am encouraged by the update.
Now that the Q1 registered deaths numbers are in (at 182,500), I estimate Q1 Underlying Operating Profit to be flat with last year (of £37.4Mill) or slightly higher. Any material shortfall against this estimate will imply a very disappointing market share outcome (following earlier pricing moves) and/or poor cost control either of which should cause the Board significant embarrassment and meet with investor disappointment/alarm.
It's clear these directors are naïve at talking to the market hence the botched announcement of lower cost plans. Thus until there are some material facts appear after a period of running, suspect the sp is at the mercy of the wind. The yield must now be pretty high - wonder if they'll dare to change that any time soon?
I mentioned this a while back when ambulances were queued up at A+E departments and patients were having to wait in the corridors outside for extended times for treatment and the knock on effect this might have.
It seems to be resurfacing again with thoughts it may extend into the summer.
" DIGNITY (LSE:DTY) Having been asked about a company named after the famous Deacon Blue song, we took a hard look at their price potentials. In light of their principal activity, perhaps a miracle is due for LSE:DTY:Dignity given the time of ..."
" DIGNITY (LSE:DTY) Having been asked about a company named after the famous Deacon Blue song, we took a hard look at their price potentials. In light of their principal activity, perhaps a miracle is due given the time of year. Then again, ..."
Stan - yes I heard that as well and re-listened to it to make sure. The FD is clearly talking about underlying profits and if you take him literally it might imply that 2018 underlying earnings for the funeral and plan sales are being projected by him at £43Mill (after allowing some growth in profitability of the Crem business in 2018). With the plan sales likely to return around £9Mill (against £8Mill for 2017) this suggests he only expects the Funerals segment to generate £34Mill of underlying operating profits. Assuming their Jan 19 implied funeral sales of 29,300 Traditional, 13,400 Simple, 20,100 Plan and 4,200 Contract at the prices advised on Jan 19, that gives total Funerals revenue of £191Mill. The FD clearly thinks that underlying operating costs will rise from £142Mill in 2017 to £157Mill in 2018 (while revenues slide by 14%) - I don't.
Bernie - I absolutely take your point re my forecast not squaring with the "significantly lower" comment reiterated in today's announcement. But, I am not attaching too much to their statement and, instead, being driven by my own assumptions. I never believed Simple funerals could be 20% of all funerals in 2018 - given the lag effect the closing mix in Q4 would have had to be around the 25% level to achieve this 20% full year average. Also, I understand that Dignity might feel the need to repeat ONS estimates of deaths but I have a different view and estimate total deaths for 2018 at 600k. Registered deaths in GB are already ahead of last year by 7,000 (5.7%) for the first 9 weeks and, assuming the remainder of the year is flat with 2017, that would take total 2018 deaths to 597k. I am also not as pessimistic as the CEO in expecting Dignity funeral volumes to be lower in 2018 than in 2017 (as expressed in the Jan 19 announcement) although I understand his caution. With favourable results from pricing initiatives and increased deaths in the year, I estimate Dignity funerals performed at 72,000 - a turnaround from recent years. But why not 72,000 - they have reduced Simple funeral prices and held prices (for now) for the other offerings. These metrics would result in total revenue for the Funerals segment of £213Mill - only £10Mill shy of 2017!
But I could well be a little light in the operating cost areas. Dignity are regularly telling us that their Funeral costs are largely fixed so I have assumed little additional cost associated with an extra 3,200 funerals. But this extra volume is largely a net of 6,000 fewer of the more costly Traditional funerals and an increase of 6,700 of the Simple funerals and 2,700 of the Arranged funerals. Marketing costs and Director bonus costs will be higher for sure and I have factored this in but could be light.
I believe Dignity got its calculations wrong in January and guided accordingly and don't expect them to make a rapid climb-down. Q1 actuals might shed some light on this hypothesis.
Is there anyone else out there doing granular projections who would like to comment?
There was an easy 30 - 33% here if you simply realised that if you reduce the price - of a market leading offering you will easily sell more. 15 % is not the 20% they were after but its early days, the website needs re-jigged to appeal further and no doubt there will be twists and turns as things go quiet for the next few months.
Follow your gut instinct and have the faith to stick with your choices.
There have been some real easy gains of late in for instance British Gas, Dignity, Sirius Minerals, Interserve and Velocys and many more and some of those will have further big rises to come or present themselves cheaply again.
Did anyone pick up on a comment made by the FD this morning at the presentation to the effect that Crematoria would become approx 50% of profits?
See also page 18 in the presentation with analysis or underlying profits. The does this mean 50:50 before overheads which suggests Funeral Services profits fall from £79.5m to c£40m and this £40m fall translates into a fall in Underlying Operating Profit from £104.6m to c£64.6m
Translating the description of a "substantial fall" would suggest something of this order.
"Lifting the share price gloom surrounding funeralcare firm LSE:DTY:Dignity is going to take some time, given the scale of the January profits warning in which the company detailed the fierce price war raging in its sector.But shares in the Sutton ..."
It's hard to square your figures of underlying operating profits of 95 million GBP with the equivalent figure just reported of 104.6 million
The outlook section of today's report says "As indicated in January, the Board believes that whilst the combination of action being taken will lead to substantially lower profits in 2018, it should create a new platform to allow many years of further stable growth." but you're forecasting a drop in underlying profits of a bit less than 10% ?
I think "substantially lower" means the board currently think there'll be more of a drop than 10%. Once that's out of the way, and they return to growth, then Dignity will again likely become a good investment.
Over the medium to long term, the current sp of just over £10 could well look like a bargain, but it's not so obvious in the short term ( ie the next twelve months ).
Totally agree on what you're saying about directors buying, and I'd expect a few RNS's to that effect in the next few working days.
BB - still on the sidelines .. looking in, but not tempted just yet.
After reviewing today's reported info and altering a few assumptions (2018 deaths, % simple funerals, total Dignity funerals and segment operating costs) I now project 2018 underlying Group operating profits at £95Mill. This EXCLUDES the costs of newly appointed Consultants and any restructuring costs incurred or provisioned and any new, currently unknown, pricing initiatives as well as all normal items regarded as exceptional items by the Group.
Underlying earnings, on same basis as above now, forecast at £52Mill for underlying eps of marginally over 100p.
Today's price uplift is fully justified and the appointment of Consultants (and alert to expected restructuring costs in 2018) is good news for the future.
Now that some info re early impact of price changes has been released to the market, the Directors can begin to buy and show their confidence in the future.
Thanks for the vote of confidence Ripley. I suspect TW has a better record of calling trades than I do; and I'm not 100% sure I was advising buying at768. I may have said it looked good value, but I was always waiting till we got some real feedback on how the new pricing structure was fairing.
Suitably reassured I did buy more this morning; but I believe they said (need to read the release in far more detail) although things had shown a marked increase with the new pricing; it wasn't quite as good as they were hoping. Also debt levels have always worried me about Dignity; so I would be happier to see that coming down a bit further.
Good to see them putting some emphasis on the Crematoria side, as this is far less susceptible to new entrants.
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