Dignity has been sold as its valuation went beyond even its excellent business and financial fundamentals. The company's defensive characteristics led to a re-rating by the market to a forward P/E ratio of 20x. Without the prospect of extraordinary growth in revenues or profits in the near future, it will be unable to justify this rating. There is now less scope for acquisitions or increases in operating margins, so from our point of view the company is a victim of its own success and must leave the portfolio until the price reflects good value again.
Dignity is one of the largest players in the UK funerals & cremations market - its 12% market share makes it 2nd only to Co-op. We like this industry's defensive revenue streams which, combined with good cost control and high operating leverage, means that the recent forecast-beating set of results from the company should continue & the risk to forecasts is on the upside. Moreover the company's acquisition strategy is value & earnings accretive and with further acquisitions expected over the coming year, this should provide further momentum to both margins and FCF. The share is trading on 11x our forward earnings estimate with a forecast FCF yield of 9.6% and RoE of 43%.
| Sedol |
Type |
Price |
Date |
| B14W365 |
Sell |
£ 7.425 |
27/02/2008 |
| B00GD19 |
Buy |
£ 4.55 |
16/05/2006 |
| B00GD19 |
Buy |
£ 4.75 |
30/03/2006 |
| B00GD19 |
Buy |
£ 4.75 |
29/03/2006 |
| B00GD19 |
Buy |
£ 4.458 |
25/01/2006 |
| B00GD19 |
Buy |
£ 3.99 |
16/09/2005 |
| B00GD19 |
Buy |
£ 3.55 |
10/06/2005 |
| B00GD19 |
Buy |
£ 3.55 |
07/03/2005 |
| B00GD19 |
Buy |
£ 2.83 |
23/08/2004 |
| 
