Shares in Dignity PLC (LON:DTY) slumped in mid-morning trading Thursday after news the competition and markets authority (CMA) said it would be investigating the funeral market amid concerns over prices.
The CMA said that its initial study of the market launched six months ago had revealed problems that had resulted in prices rising ahead of inflation for over a decade, with larger chains hiking prices year-on-year that lower cost funeral options were not making up for.
READ: Dignity shares drop as profits fall amid restructuring to ward off tough competition
Andrea Coscelli, chief executive of the CMA, said those mourning the loss of someone were “extremely vulnerable and at risk of being exploited” and that the regulator was concerned with the “substantial price rises” that had occurred.
In its interim report, the regulator said people generally spend between £3,000 and £5,000 organising a funeral, and the price of the essential elements had increased by more than two-thirds in the last 10 years, almost three times the rate of inflation.
Organising a funeral would now cost those on the lowest incomes nearly 40% of their annual outgoings, more than they spend on food, clothing and energy combined.
The report added that people could save over £1,000 by looking at a range of services, although they were usually too distressed to do this which allowed funeral directors to charge higher prices.
In response to the announcement, Dignity’s chief executive Mike McCollum said that group took the CMA findings “very seriously” and had already been making voluntarily changes to its business, adding that it would make all of its funeral prices available online by the end of the first quarter of 2019 as well as unbundling its price structure to give more flexibility for clients.
The response did little to assuage shareholders, with the stock price plunging 15.6% to 850p.
CMA language opens greater than expected threat, says broker
In a note to clients, analysts at City broker Peel Hunt downgraded Dignity to 'Sell' from 'Hold' saying the language used by the CMA was “more strident than expected and includes [cremations] as well as funerals”.
“The best case scenario is that the CMA just ends up asking for greater visibility on pricing. However, the tone of the statement suggests greater remedies will be required. This will put further pressure on pricing in Funerals, but opens a new risk in Crems”.
The CMA report followed further misery for Dignity earlier this month when it reported a 38.6% drop in underlying operating profit for the third quarter as it undergoes a restructuring of the business to better contend with fierce competition.