Dignity shares bounce back amid relief over revamp
The group said its budget option account for 15% of total funerals since it lowered prices in January.
Funeral firm Dignity has seen its shares bounce back after revealing lower-than-expected take-up for its “no frills” option despite slashing prices.
The group’s under-pressure shares rebounded by as much as 18% at one stage after it said that despite a “step change” in the number of budget funerals chosen since it lowered prices in January, these only account for 15% of all funerals.
It also said it had called in management consultants LEK to help lead a revamp to fight off increasing competition.
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. Dignity
Dignity has seen shares plunge to their lowest level for six years after warning in January over a hit from moves to slash prices as part of its fight back against rivals.
The group had cautioned that budget options could make up 20% of total funerals after price cuts, up from around 7% last year.
In annual results, it continued to brace for a significant hit to profits this year as it is also trialling price cuts for its traditional funerals in the second quarter to boost its market share.
It said: “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.”
Underlying pre-tax profits edged 3% higher to £77.8 million for the year to December 29 and were flat on a reported basis at £71.2 million.
Charles Hall, analyst at Peel Hunt, said if the 15% run rate for its Simple funerals remains, “it would improve both sales and profits by £5 million due to higher average pricing”.
Russ Mould, investment director at AJ Bell, added the shares bounce back “suggests the market may have been overly cautious in reacting to the new pricing strategy and profit warning in January”.
Dignity said it would report back on its trials and the review by LEK at the time of its interims in August.
In January, it said the cost of its simple funeral will be cut by 25%, while the prices will be frozen for its traditional funerals in the “majority” of locations.
The group has been grappling with an assault on its market share for some time.
The average fall in the number of funerals per location, per 1,000 deaths, has deepened from 3.6% between 2004 and 2014, to 6.8% between 2015 and 2017.
Dignity said the decline will continue, but price cuts will help to stem the falls in 2018.
In its annual results, the group said that deaths last year remained flat at 590,000, but are predicted to fall to around 580,000 in 2018.
“However, the number of deaths in the first two months of 2018 are approximately 7% higher than the prior year,” it added.