Death and taxes
Dignity is one of the UK’s largest providers of funeral services and pre-paid funeral plans. It owns over 800 funeral locations and operates 46 crematoria in the UK.
The old adage is that there are only two certainties in life: death and taxes. Now, I don’t want to advocate taking advantage of the departed but the inevitability of death offers Dignity shares an element of defensive capabilities in my eyes.
As I write, shares in Dignity are trading for 702p. At this time last year, shares were trading for 522p, which is a 34% return in 12 months. Shares in the year-to-date are up 17% from 596p to current levels too. Most of the UK shares I am currently interested in are on a similar upward trajectory.
Why I like Dignity
Defensive capabilities. The demand for funeral services may fluctuate but it will never cease. There will always be the need for such services as death is inevitable. I believe this offers Dignity a layer of protection as a defensive characteristic for its operations.
New strategy. A recent change in strategy shows new intent to maximise returns and reinvent the way it conducts business. Previously Dignity used to sell through telephony partners. It is cancelling five contracts in place that it described as “uneconomical,” which will save it £12m. Dignity will look to sell funeral plans through its branch network instead. In my opinion the best UK shares are those that can identify weaknesses and do something about them!
Performance. Recent performance has been favourable for Dignity according to its interim results for the 26-week period ended 25 June. Revenue increased from £169.1m in the same period last year to £169.4m. Profit after tax increased and so did cash generation, by 17% compared to the same period last year. This is all with 28,000 fewer deaths recorded.
UK shares have risks
Dignity does not come without its risks, however. In the past, Dignity has been accused of over-pricing. In fact, things went as far as an investigation by the Competition and Markets Authority (CMA). The scandal led to a loss in market share and affected performance figures. Since the CMA investigation, Dignity has undertaken a cost review exercise with a commitment to ensure competitive pricing reflective of the wider market.
Overall I am not worried by Dignity’s past issues, although it is worth noting that the CMA is also looking at reducing the cost of funerals in the UK. I would still add shares to my portfolio at current levels. The change in strategy excites me and I think it could be an excellent UK share for my portfolio over the long term with its defensive capabilities and footprint.