Author Topic: DTY.L - Dignity Funeral Services  (Read 3710 times)

DRValue

  • Full Member
  • ***
  • Posts: 101
DTY.L - Dignity Funeral Services
« on: March 07, 2018, 10:52:13 AM »
There's a few businesses on my radar at the moment. I value businesses I like and wait for the price to fall. It takes a long time!

Took a position in Dignity Funerals a few days ago before the bounce. The only listed funeral services provider in the UK and the largest operating in three segments: funeral services, crematoria and pre-arranged funeral plans.

The stock has fallen 50% on the back of a trading update lowering guidance due to an impending price war. Here's the bullet points:

  • We're not going to stop dying so revenues shouldn't dry up
  • If we do stop dying, I wont care about any money I lose on the trade
  • Historically a price giver to the market
  • TTM 21% net margin
  • TTM Owners earnings before capex (net profit + D + A) of £73.3m
  • Personal projections of ongoing Owners earnings less maintenance capex (9m), of £45.8m
  • Dividend still covered at £11m per year
  • Owners earnings ROTCE rate of 19% at 75% confidence gives an return on retained capital growth rate of 14.25%
  • The Groupís primary financial covenant under the Secured Notes requires EBITDA to total debt service to be above 1.5 times. The ratio at 30 December 2016 was 3.37 times (2015: 3.35 times).
  • Debt covenants are "The Secured Notes have an annual debt service obligation (principal and interest) of circa
    £33.2 million."
  • Modelling EBITDA of £94m brings the ratio to 2.83
  • Not the strongest balance sheet (0 tangible equity and high debt), I normally like to see very strong here but you don't always get what you want...., but product demand stable (see point 1...)
  • With a discount rate of 9%, a 15 year retained earnings growth rate at 14.5% and a terminal growth rate of 3% NPV per share comes out at c.£23
  • Even if EBITDA, owners earnings and growth is over estimated the margin of safety is high enough
  • Montanaro Asset Management Limited small-mid cap investor just increased stake from 3.95% to 4.54%
  • UK has just had one of the coldest snaps in years. Could mean customer numbers are higher than normal. This probably explains the share price increase over the last few days. Not aware of anything else that would move it, maybe its just a bounce off the bottom.








Not Investment Advice. Do Your Own Research.


DRValue

  • Full Member
  • ***
  • Posts: 101
Re: DTY.L - Dignity Funeral Services
« Reply #1 on: March 07, 2018, 10:56:17 AM »
Not Investment Advice. Do Your Own Research.

Pondside47

  • Newbie
  • *
  • Posts: 34
Re: DTY.L - Dignity Funeral Services
« Reply #2 on: March 07, 2018, 11:05:26 AM »
What are your thoughts on the short thesis and the lack of insider ownership? Historically the management has owned almost no shares.  What kind of insider activity has there been since the price drop?

Pondside47

  • Newbie
  • *
  • Posts: 34
Re: DTY.L - Dignity Funeral Services
« Reply #3 on: March 07, 2018, 11:40:19 AM »
What are your thoughts on the short thesis and the lack of insider ownership? Historically the management has owned almost no shares.  What kind of insider activity has there been since the price drop?

https://funeralbooker.com/blog/dignity-report/

DRValue

  • Full Member
  • ***
  • Posts: 101
Re: DTY.L - Dignity Funeral Services
« Reply #4 on: March 07, 2018, 11:42:02 AM »
What are your thoughts on the short thesis and the lack of insider ownership? Historically the management has owned almost no shares.  What kind of insider activity has there been since the price drop?

On the short side, I don't invest in businesses where the event that has moved the stock price is a business breaking/ending event. This business isn't broken but its returns will be depressed for some time due to the price war. I don't see them being too low as lower prices charged could see them picking up more market share and price reductions are only on a sub-set of their business. The knock-on from that is the reduction of EBITDA could worry people about the debt covenants but i'm not too worried due to the projected coverage and the margin of safety.

Insider ownership - I do like it high and growing. I don't have the details for what it was and what it currently is, but I have looked at so many businesses where insiders own only a fraction. Its not the be all and end all for me as if I made investment decisions on insider ownership i don't think I'd ever buy a stock.

One place I really like high insider ownership is when it is a family owned business. I owned Daejan Holdings (DJAN.L) for a while a few years ago its a great stock in a crash for a P/B value play as the debt they have doesn't have covenants, its all commercial mortgages, so book value could fall and earnings and banks wouldn't care (this was a while ago, not sure of the capital structure now though but knowing the business i expect it to be similar)
Not Investment Advice. Do Your Own Research.

DRValue

  • Full Member
  • ***
  • Posts: 101
Re: DTY.L - Dignity Funeral Services
« Reply #5 on: March 07, 2018, 11:46:38 AM »
What are your thoughts on the short thesis and the lack of insider ownership? Historically the management has owned almost no shares.  What kind of insider activity has there been since the price drop?

https://funeralbooker.com/blog/dignity-report/

Will take a look at this, thanks for the link.
Not Investment Advice. Do Your Own Research.

DRValue

  • Full Member
  • ***
  • Posts: 101
Re: DTY.L - Dignity Funeral Services
« Reply #6 on: March 07, 2018, 12:06:30 PM »
What are your thoughts on the short thesis and the lack of insider ownership? Historically the management has owned almost no shares.  What kind of insider activity has there been since the price drop?

https://funeralbooker.com/blog/dignity-report/

I've taken a very quick look and skimmed it, I need to and will read the whole thing. What did stick out though was the projections right at the end. As with all short reports it positions the article for the end of the world but then says that on average over the next 5 years there will be no growth in earnings but average earnings are £62.34m. Applying a multiple of 15x to this gets you to £935m market cap high enough above the current £450m.
One valid point is the lack of a single brand to the public which I would like to see and I actually think would make more sense. But thinking again you could argue that its like a multi-brand strategy, but yes I would like a single brand.

My thoughts on both long and short thesis is you have to take things on the balance of probability, and when looking at both sides you'll probably end up somewhere in the middle.
Not Investment Advice. Do Your Own Research.

rb

  • Hero Member
  • *****
  • Posts: 2552
Re: DTY.L - Dignity Funeral Services
« Reply #7 on: March 07, 2018, 12:23:32 PM »
One valid point is the lack of a single brand to the public which I would like to see and I actually think would make more sense. But thinking again you could argue that its like a multi-brand strategy, but yes I would like a single brand.
Funeral companies don't like to brand themselves in order to mask their size. I think their PR people told them that coming to be known as "Big Death" is probably a not a good idea.

Sharad

  • Full Member
  • ***
  • Posts: 128
    • Blogging About Money
Re: DTY.L - Dignity Funeral Services
« Reply #8 on: March 07, 2018, 01:37:09 PM »
Ever since Keystone North America was bought out by one of these larger funeral home companies, I have stayed away from this industry. Keystone was an asset light funeral home, and didn't own any of the land associated with burial plots/cemeteries. Once you add cemeteries and the like, the operating metrics just don't look as great. I like turnover (as morbid as it sounds when it comes to funeral home companies), and you lose that benefit when you're locked into land that serves no other purpose than for cemeteries (the maintenance of that land is so high, it feels more like a liability than an asset). Just some thoughts.
"If we are not able to ask skeptical questions, to interrogate those who tell us that something is true, to be skeptical of those in authority, then we are up for grabs for the next charlatan - political or religious - who comes ambling along."
- Carl Sagan

rb

  • Hero Member
  • *****
  • Posts: 2552
Re: DTY.L - Dignity Funeral Services
« Reply #9 on: March 07, 2018, 05:30:30 PM »
Sharad, can you please elaborate a bit, I was under the impression that ownership of cemeteries was a very profitable activity.