Is the funeral services group digging its own grave?
Companies: Dignity plc
Funeral group Dignity (LON: DTY) has seen its share price halved today after it warned on profits for FY18.
The UK's only listed provider of funeral-related services has warned it is in the midst of a price war and is keen to "address the continuing acceleration of price competition".
Management said:
"The Board is therefore taking decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the Group for future growth. Consequently, the Board believes that the results for the period ending 28 December 2018 will be substantially below the market's current expectations."
The announcement sent the market into a spin with shares tumbled 48% as markets opened on Friday morning.
The Group said it is reducing the cost of it simple funeral service by 25%, effective immediately, and is freezing its tradition funeral service cost...
"Consequently, the Group is now embarking on a rigorous review to ensure that its funeral operations are organised to run more efficiently and effectively."
The move comes as the funeral market becomes over-supplied and Dignity continues to lose market share, seeing a c. 7% decline in sales between 2015 and 2017.
It also plans to spend £2m on marketing to promote its new pricing model.
The sharp drop in the Group's share price means it trades at roughly the same price it did in 2012, after which it saw steady growth until 2016 when it first began warning investors on the increase in competition.
The slump means the Group has a current Market Cap of £493m, it trades on a forecast PE ratio of 14x and has a forecast dividend yield of just 1.5%. In 2016 it reported an operating margin of 31%, with this set to change substantially in the coming years.
