Investec upgrades Dignity to 'buy' on strong Q1
By Michele Maatouk
Date: Monday 15 May 2017
(ShareCast News) - Investec upgraded funeral provider Dignity to 'buy' from 'hold' following the company's first-quarter update, in which it reported a 15% jump in revenue as deaths rose 7%.
The brokerage said Dignity has made a "strong" start to the year. "Whilst Q1 16 presents a weak comparator, a situation which we expect to unwind over the year, the results are more impressive when viewed relative to Q1 15 (the strongest quarter in ten years)," it said.
It added that with acquisition activity remaining high, strong growth in pre-arranged funerals and robust average prices, Dignity is well placed to meet expectations.
Investec said that with the death rate assumed to revert to a more normal level over the course of full-year 2017, it expects 2% revenue growth on a 2% decline in deaths with an EBIT margin of 33%.
Dignity said on Monday that revenue rose to £93.3m in the 13 weeks to the end of March from £81.2m the year before, as underlying operating profit grew to £37.4m from £31.1m. Meanwhile, the number of deaths increased to 167,000 from 156,000.
It said the pre-arranged funeral plan business is trading well, with sales significantly higher than the first quarter of last year. In addition, the company has completed the acquisition of a total of 12 funeral locations and one small crematorium for around £20m. This includes one funeral location acquired after 31 March, but prior to the date of this announcement.
Investec has a 2,940p price target on the stock.
At 1250 BST, the shares were up 5.6% to 2,674p.
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