Wednesday, 4 March 2015

Death as an investment theme: Dignity plc

“Nothing is certain except death and taxes” - Benjamin Franklin 


One line from the UK-listed Dignity plc's numbers today stood out for me:


'Deaths in the first eight weeks of 2015 are approximately 23 per cent higher than the abnormally low number in the same period last year'

For any other type of company this would be probably bad news but for the funeral services provider Dignity a different and more positive interpretation is undoubtedly correct.  The UK's biggest funeral operator has generated impressively improving results over the last few years...


...and today's FY2014 numbers with £84.9m of operating profit generation continued this progression.  This time, however, it was the underlying operating profit due to non-cash charges from a refinancing plan: 

'Capital structure refinanced with new 35 year investment grade secured debt, reducing annual debt service obligations (principal and interest) from approximately £40 million to approximately £33 million per annum

£64.4 million of cash returned to shareholders (£1.20 per share) following this refinancing'

To put this last statistic into context, £1.20/share is equal to over a 6% yield...

Looking through today's release there was a continuation of the high customer satisfaction levels the company has enjoyed:

'Customer satisfaction remains at very high levels, with 99 per cent of families saying we met or exceeded their expectations and 98 per cent saying they would recommend us'

That is why referrals is such a huge source of their new business: 


Dignity is a solid and cash generative business for investors where further acquisitions will augment the strong competitive position.  So what price for such a company?

With net debt rising due to the aforementioned capital return as well as ongoing acquisitions...


26 December
27 December

2014
 2013

£m
£m
Net amounts owing on Old Notes
-
(403.0)
Net amounts owing on New Notes
(594.6)
-
Add: unamortised issue costs - issued 2014
(0.7)
(16.3)
Gross amounts owing on Secured Notes per financial statements
(595.3)
(419.3)
Net amounts owing on Crematoria Acquisition Facility per financial statements
(15.6)
(15.6)
Add: unamortised issue costs on Crematoria Acquisition Facility
(0.2)
(0.2)
Gross amounts owing
(611.1)
(435.1)
Accrued interest on Secured Notes
(5.7)
(14.3)
Cash and cash equivalents (a)
86.5
79.3
Net debt
(530.3)
(370.1)



...the company's EV is around £1.5bn i.e. putting the company's prospective EV/ebit multiple around x15-16 times.  That's quite full even for a positive structural theme stock like Dignity.  

So, thoughts?  Despite the balance sheet being a little debt heavy I would buy the stock at a x14 forward multiple which equates to something in the mid 1700s.  Given the support shown over recent months at 1800p a share price below this level is the sort of level which would work for me.  


Tomorrow (time permitting) I will take a look at Dignity's great US peer: SCI.  




1 comment:

  1. The reason their mack so much profet is you can onley put their stones on their graver which is over 2* the coust of stones on the internet and bumbling it for insherenc in case it is stolin if u put your owne stone on it they tack it of and therw it a way.

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