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Dignity upgrades profit forecasts on “stronger than expected” fourth quarter

In a brief trading update, the funeral services provider said the average funeral income had remained higher than anticipated while overheads had been lower than expected
Funeral
The update will bring some cheer to the end of a rough 2018 for Dignity

Dignity PLC (LON:DTY) has reported a “stronger than expected” performance in the fourth quarter.

In a brief trading update for the full year, the funeral services provider said the average funeral income had remained higher than anticipated while overheads had been lower than expected partly due to the timing of some marketing spend that had been pushed back to 2019.

READ: Dignity shares buried as CMA launches probe into funeral prices

The company also said its market share had remained “robust” with small year-on-year growth and as a result, underlying operating profit was now expected to be £79mln, ahead of market expectations.

Initial indications suggested there had been around 599,000 deaths during the year, in line with the group’s expectations.

Dignity added that its transformation plan, which includes cutting prices, higher marketing spend, and simplifying its business model, was continuing with “good progress”.

The group said that following price reductions in 2018, it expected average funeral incomes to be lower in 2019 and made no changes to its expectations.

The upbeat forecast will close out 2018 on a higher note for Dignity after a rough 12 months that has seen its share price fall by nearly two-thirds.

READ: Dignity to drop funeral prices, issues profit warning for 2018

The initial plunge came last January when the group issued a profit warning amid competition pressures from other providers, saying its 2018 results would be “substantially below the market's current expectations”.

This was followed in November by another (albeit smaller) drop after the UK’s competition and markets authority (CMA) said it would launch a probe into the funeral services market after an initial study concluded that prices had been 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.

Broker says update “pleasing surprise” but cautions on looming CMA and cuts target

In a note to clients, analysts at broker Peel Hunt said that the update should come as “a pleasing surprise”, however it did not change the risk that the CMA would impose “onerous conditions” on the company and the wider industry, and thus cut their target price for the firm to 700p from 800p.

Analysts added that Dignity’s pricing initiatives had thus far been in Funerals, but the CMA had included cremations in its investigation as well.

In mid-morning trading Tuesday, Dignity shares were down 1.8% at 707p.

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