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MARKET COMMENT
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"It's not that I'm afraid to die, I just don't want to be there when it happens." - Woody Allen Death is a growing business according to Dignity, the UK's second biggest undertaker. Dignity, which is planning to come to market this year, also reckons that demand for funerals and cremations in Britain is "driven by the death rate"! In 2001, the company posted revenues of £117m, and one year later, turnover had climbed 10% to £129m. Profits have followed suit. They came in at £32m in 2002, up from £20m a year earlier. The death rate in the UK has remained relatively stable at 600,000 bereavements per year, which begs the question as to how Dignity is growing from an industry showing flat-line growth. The answer lies partly in that funeral costs that are rising at twice the rate of inflation. Additionally, many Britons are still uncomfortable with the idea of digging around for burial bargains. That naturally plays into the hands of Dignity. It has a 507-strong network of funeral homes, which represents 12% of the total number of funeral outlets in Britain. Some of us do pre-plan our funerals. Dignity reckons that there are 160,000 outstanding pre-arranged plans, and it expects to perform 75% of them. Dignity also operates 21 crematoria across the UK, and is the largest single operator of crematoria in Britain. Last year, Dignity carried out over 39,000 cremations. Dignity plans to raise as much as £150m from the sale of shares this year. Some of the proceeds from the flotation will be used to repay a £40m loan from J.P Morgan Chase, which becomes payable in 2007. Initial estimates value Dignity at approximately £200m. On the surface that looks a bit expensive for a business that had a turnover of £129m in 2002. That said the industry remains highly fragmented, with over 65% of funeral homes controlled by independent undertakers. Consequently, armed with cash from a share float, Dignity could be a major player in prompting industry consolidation. Personally, I don't care too much for flotations. I've seen too many initial offerings go up in smoke, and this crematoria specialist could go the same way if its shares are priced too high!