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By Chris Bailey | Thursday 7 June 2018
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Oh Dignity (DTY). After last week's shocker – commented on HERE, following the announcement of the CMA funeral sector review, today's AGM statement from the UK's leading funeral related services company continues to be desperately mixed...and the rationale for owning the shares remains buried below the harsh realities of a sharply changing industry.
When a company utters that it 'continues to believe that trading during 2018 will be volatile', you have to be very cautious. The trouble is, in short, the high margin, steady repeat business rug is being pulled away from underneath these guys. Certainly being the largest player in an industry sector where referrals are important, a local location/face really helps and aggressive price negotiations by customers may not naturally or easily occur are all positives which have aided the Dignity story - and led to a sharp rise in its share price and return of capital over time to investors - since its IPO. However...the times are a-changing.
It is not just the CMA (and Treasury) review, it is that the realities impacting the company and its sector are changing. The internet-information revolution is changing everything and this induces change in how individuals both finance their funeral arrangements and families access such services in their time of need.
This is why Dignity had the shocker announcement earlier this year about the pressure on prices. The genie though is well and truly out of the bottle. This is a multi-year trend that is not going away - and the CMA review in particular might make this trend even more harsh. Sensibly, the company is working with the authorities and providing its views.
Shorter-term, the group has used its experience to minimise disruptions but the volatility and related comment above shows you that it knows more challenges await. It has been helped by a higher death rate (up 7% year-on-year) but this is not enough to get excited about the shares. As I noted last week: 'I am still watching not investing. This one feels as if - again - it is going to go lower'. Today's AGM statement just reiterates this view.
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