Funeral services provider Dignity (DTY) is marked up another 6p to £20.89 as a positive first quarter trading statement pleases. The running Play of the Week flags a very strong start to 2015, as the number of deaths jumps the best part of 20% against a weak 2014 comparative.
Sutton Coldfield-headquartered Dignity is the UK's only listed provider of funeral related services and offers investors a play on the first of life’s two oft-quoted certainties, namely death and taxes. It boasts proven defensive qualities and generates copious amounts of cash, thanks to the non-discretionary nature of the day-to-day business.
Dignity's first quarter update, which you can read here, makes pleasing reading, at least from an investors' point of view. Over the thirteen weeks ended 27 March, operating profit grew 39% to £35.8 million on sales 23.7% ahead at £85.5 million. Admittedly, the first quarter was expected to be strong, given an abnormally low prior year comparative, when the number of deaths fell by 7%.
Yet a 19% quarterly increase to 175,000 deaths is higher than expected and sees Dignity now guiding toward total deaths broadly in line with 2014, north of previous guidance of a 1% decline. Guided by CEO Mike McCollum, Dignity, which has delivered eleven consecutive years of operating profit growth, also says it has snapped up an additional ten funeral locations for £8 million since the start of the year. This M&A activity has further strengthened its national footprint and market share - still less than 12% - and reassures the market there are still plenty of targets for Dignity to go for in a fragmented industry.
Panmure Gordon is sticking with his 'buy' recommendation and £22.00 price target. 'Despite the strong rise in the number of deaths in Q1, the number of full year deaths in 2015 is expected to be broadly flat on last year,' the broker notes. Meanwhile Investec Securities reiterates its 'hold' rating but leaves its forecasts unchanged, 'as the strong growth in deaths is expected to normalise throughout the year. Whilst the company seems more positive about the full year underlying death rate, we believe this gain will be offset by a delay to the annual price rise (which was brought forward to June in FY14) moving it back to the usual Sept/Oct timeframe.'
