US Edition Dignity
705p -0.5p
Questor says HOLD
Investors in Dignity should get ready for a windfall.
The funeral group consolidator is in the process of finalising a bond issue which will result in 100p a share in cash being returned to shareholders.
However, this will mean the interim dividend of 4.43p a share is cancelled. This was slated for payment at the end of October.
The cash return will be just under £70m, out of a total £82.1m raised in the bond market. The balance will be used for more acquisitions of undertakers – apart from a £1m contribution to its pension fund.
Of course shareholders need to approve the move, but Questor feels it is likely that most will vote in favour. Investors should receive a circular on the proposal within the next few days and the meeting will be held on October 8.
If approved, a share consolidation will also happen following the special dividend payment.
The cash return is at the lower end of expectations. When Questor first discussed the possibility at the start of August a return of 120p a share was being discussed by analysts. However, this still represents a one-off yield of 14pc.
The shares were first recommended at 538p on May 5 last year and they are now 31pc ahead compared with a market up 32pc. They are trading on a December 2010 earnings multiple of 15.9 times, falling to 14.6 next year.
The shares are now at a level that has not been seen since before the credit crunch hit in 2008 and Questor feels that the shares are a hold for now. They are likely to fall after the return and, as one analyst said: "It's better to travel than to arrive." Therefore the rating on the shares is now a hold.