Funeral Firm Resurrected as Brits Choose Full-Price Services

(Bloomberg) -- More bereaved Brits are opting for full-price funerals than anticipated, breathing a little life into the shares of one of the U.K.’s worst performing stocks so far in 2018.

Dignity Plc, the U.K.’s largest funeral company, rose as much as 18 percent on Wednesday after the company said the run-rate for its cheaper simple funeral package -- involving a basic service, limited choice of coffin and offered at less popular times -- has been about 15 percent of total funerals in the seven weeks since it slashed prices in January. That was better than the 20 percent proportion Dignity had previously forecast.

For every percentage point the simple funeral run rate is below the original guidance, around 3 percent can be added to 2018 earnings estimates, Panmure Gordon analyst Michael Donnelly said. “We can see how substantial upgrades to 2018 earnings consensus forecasts may be deliverable in due course,” said Donnelly, who recommends buying the stock.

The shares fell more than 50 percent in January after the company said it would slash the price of the simple funeral package and freeze prices on other funerals as price-conscious customers are “shopping around more.” Dignity Chief Executive Officer Mike McCollum said in an interview Wednesday that this has been driven by a change in consumer behavior rather than short-term impacts like Brexit-related uncertainty.

McCollum said that Dignity has seen an increasing number of new competitors, with low barriers to entry in the industry. No licensing, qualifications, experience or minimum standard of facilities are necessary to become a funeral director, he said. “You don’t even need refrigeration.”

New firms are also promoting themselves online at the same time that consumers are increasingly comparing funeral prices to save money. The problem, McCollum said, is that there are “a lot of moving pieces” with a funeral which can alter the cost -- the coffin, flowers and quality of the service -- so it is tough to get a definitive price in the same way as for hotel bookings or cellphone contracts.

Dignity is looking to offset some of the challenges in the funeral business with its crematoria services. Performance in that segment remains very strong because finding an appropriate site to build a crematorium and securing planning permission is difficult. The cash flow from this business will allow Dignity the room to experiment with other price-conscious formats for its funeral services, McCollum said.

Still, the company has a long way to go to recover lost ground from the January warning. The shares are down 46 percent year-to-date even after today’s gains, and it faces demotion from the FTSE 250 Index next week.

To contact the reporter on this story: Sam Unsted in London at sunsted@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Beth Mellor

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