Dignity (DTY): Activist turnaround opportunity?

A quick check on Dignity (DTY). This funeral services group was for years touted as a Buffett-type investment, as among other things:

  • Demand was relatively predictable;
  • Buyers generally did not shop around, and;
  • Planning restrictions limited the number of crematoria.

Group margins were about 30% with crematoria trading margins at 50%-plus. The share price did well until increasing price competition from no-frills operators led to lower market share, lower profits and an axed dividend:

DTY sharepad share price

The price has rallied since the lows of last year, in part due to the activism of Phoenix Asset Management. Phoenix presently owns almost 30%, a stake worth £135m, and ousted Dignity’s management at a general meeting earlier this year.

Phoenix first disclosed a shareholding during January 2018 (share price c£18) and owned 27% by May 2019 (share price c£7), when a company representative joined DTY’s board as a non-exec. I don’t get the impression Phoenix has been too successful with its Dignity investment to date with the shares now at £9.

DTY’s recent AGM presentation showed Phoenix’s ambitions. Plans could include spinning off the crematoria division:

Operational improvements could lead to a divisional value of up to £1.6b, versus a current DTY market cap of £450m.

Phoenix’s 10-year projections could lead to an annual profit of £290m and an annual ‘surplus’ (= free cash flow?) of £175m:

Phoenix outlining its projections is very commendable. Will be fascinating to see how the scenarios match up to the eventual reality. The prospect of free cash flow(?) of £175m in 2031 could make today’s £450m market cap appealing.

But it’s always best with turnaround stories to check the form of those leading the turnaround. I have often found turnarounds can take far longer to turn then anyone ever imagines.

Phoenix’s founder and chief investment officer is Gary Channon, whose bio on the DTY website says:

“Gary’s investment approach at Phoenix is strongly influenced by Warren Buffett and Phil Fisher: long-term, value-based and focused, looking for great businesses run by competent, honest, shareholder-aligned managers, companies with strong pricing power, generating an enduring high return on capital, and waiting for the opportunity to invest in them at attractive prices.”

Sadly full details of Phoenix’s main UK fund are accessible only to certain professional investors. But the fund’s performance is shown below:

The annualised returns are insightful. Before fees, the UK fund has returned 11.8% annualised, but after fees the return drops to 9.1% annualised. You may think the difference is not great, but look at the Cumulative line. A 1,212% compounded return has been reduced to a 651% return – i.e. almost half of the gross return has been eaten away by charges!

The Phoenix website says on fees:

The Phoenix UK Fund has an annual management fee of 1%. We earn a performance fee of 20% of profits once the Fund has risen by inflation for the year. Inflation is calculated using UK CPI.

We operate a high water mark system for the performance fee. That means, if the price of the Fund has fallen, we don’t earn performance fees again until the Fund price has returned to its previous peak. This high water mark moves up by inflation every year.

Ordinary investors can ride with Phoenix through the Aurora investment trust:

DTY aurora returns

DTY aurora holdings

DTY represents 7% of the trust, and the trust is said to be run on the same lines as the main UK fund. But I have no idea whether the holdings and weightings are similar. I must admit, Aurora’s holdings do not all seem to be the Buffett-type holdings that Mr Channon’s bio says Phoenix prefers.

Aurora’s returns are not spectacular. Up 70% in 5-and-a-bit years is c10% annualised. My own portfolio is up around the same over the same time, and has outrun Phoenix’s main UK fund over the last 20 years (c15%pa vs c9%pa, albeit with me managing much less than Phoenix!). So the returns evidence does not suggest Phoenix has a Fundsmith-type magic touch.

Unfortunately I can’t say the holdings and performance of Aurora inspire me to look further into Phoenix, or indeed look any closer into DTY. Which is a shame, as I do have a lot of respect for activists who are happy to fight management in public and take executive charge. Clearly Phoenix’s interests are aligned with those of other DTY shareholders, so the longer-term omens for DTY ought to be positive… but are they positive enough?

Thoughts welcome.


I think that a spin out of the Crematoria business is a very good idea. There will always be a demand for them and I suspect that they will grind out utility like returns.

I held DTY for quite a while and sold out once it ran into turbulance. Not sure that I am brave enough to go back in at the moment.

Those management fees by Phoenix are a good example of why PI’s like to manage their own money.



This was one of Keith Ashworth-Lloyd’s favourites, until the moat appeared to be a case of the emperor’s new clothes, and price-cuts were necessary to stop competitors eroding their market position. (not dissing KAL - I wish I was as clever as he clearly is!, but pls see the chapter in his book).

How have Dignity solved this moat problem? I can’t see they have. Without a moat, economies of scale can only take the company so far. It isn’t like a SDI or Judges buy and build because the technical knowledge to operate the business isn’t hard to replicate and I don’t believe that there are a limited number of licences available to funeral parlour start-ups.

The elephant in the room is debt. Long term borrowing is at £600m and has been for a while. For a market cap company of £443m, this is clearly too high.

  • Possible future share dilution?
  • Debt redemptions will gobble up future dividends and cash-flow for growth?
  • What happens if corporate bond interest rates increase in the future?

Potential valuation of £1.2bn - 1.6bn is enterprise rather than market value, imo, if only because the definition of fcf generally excludes interest payments -take the 600m of long term debt from their valuation estimate that gets us to £0.6bn-£1bn against current valuation of £0.44bn, not quite so appealing for the risks involved.

AVOID! :grinning:

AVOID IT’s with any sort of performance fees, also!! :grinning: :grinning:



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Hi anon

To be fair to KAL, he did say on a PI World webinar once that if he could rewrite any part of his book, it would be the Dignity bit. Book was published only in 2016, which shows just how much can change in a few years for a LTBHer.

Agreed on the debt. Underlying finance costs were £25m last year, versus an underlying operating profit of £56m. So not a lot of room for manoeuvre should the recovery hit a problem. (Small-print says £823m would have been needed to clear the secured notes at the 2020 year end!) Balance sheet entries includes monies from prepaid funerals, which can be refunded. There’s also a pension deficit. So a lot going on, which is not ideal. As you say, best to consider any dilution and to use enterprise value. Presentation gave projected profits but I can’t recall any mention of the balance sheet, which may be deliberate.


I had a look at this expecting to reject it quickly, but, after a few months looking at it, I have invested. This is a departure from my usual micro-cap (<£250m) long-term, insider-equity growth investments.


D. is undervalued by at least 30%. There is uncertainty and many unattractive aspects, but little risk of permanent capital loss. My perceived odds are:

  • Capital loss: < 10% - even then underpinned by predictable market and crematoria
  • 1x to 2x return: 25% - crem value wrong and some negatives greater
  • 2x to 3x return: 50% - funeral business is worth more than £360m, some upsides
  • more than 3x: 15% - funerals and plans worth materially more, up-sides realised



Predictable with overall demand forecast to gradually increase over next 20 years.

See below re competition in each of group’s three divisions. While barriers to entry are lower than D. presented there are some basic requirements including administering paperwork, handling the deceased and arranging burial or cremation.


In 1960, 35% of deceased were cremated. This increased to 77% by 2017. In 2018, there were 299 crematoria split 190 local authority, 109 private (46 D., 29 Westerleigh, 9 Memoria, 6 London Crem Co). The number of direct cremations (or those without a ceremony) is increasing.

The funeral director usually makes the arrangements in consultation with the client. The cremation usually costs c. £900. With 1,600 per crematoria revenues are c. £1.44m and EBITDA c. 1m. The cost of a crematoria is c. £5m to develop (and assume c. £1m for land and permission) with a 3 or 4 year ramp up to a mature £1m that implies a c. 6 year payback. High up-front, but low ongoing capex suits dividend seeking infrastructure and pension investors.

D. has 46 operational and 6 in planning with 4 of those under construction. 19 of 46 leasehold but long leases with none due to expire before 2031. Often D, leases ground but owns facilities making it difficult for council not to extend lease. In 2013, 9/39 had adjoining cemetaries and c.

14% are from D. funeral directors.

Phoenix recently valued the crematoria at £1.2bn to £1.6bn. My valuation (with no credit for operational improvements or sites without planning) is:


£50m EBITDA plays against EBITA of £43m implying £7m depreciation. Maintenance capex is c. £4m.

Crematoria are unique, quasi monopoly assets. By definition, planning requires a need not served locally. There is potential for regulation but given differing quality and pricing, regulation is unlikely to be unduly onerous.

D. with Westerleigh is one two private operators of scale, so should achieve a premium. Westerleigh has recruited new consumer and operational team. It is owned by pension and infra funds: 2013 Antin Infrastructure and 2016 Ontario Teachers and USS (£53bn AUM).

In the current market, there would be credit for sites with planning, especially as four are well developed and were meant to open in 2019 to 2021. D. bought five (3 freehold and two leasehold) for c. 16x EBITDA in 2015. Channon said Phoenix had access to comparables when presenting their multiple (see 2021 AGM). Operational improvements include catering (2/46 have catering) and increasing chapel capacity (often a peak constraint). These are upsides to the current valuation.

I have taken some of the estimated central costs an allocated them to crematoria based approximately on headcount. The find the lack of cost disclosure irritating in a multi divisional group, where the parts are valued very differently. Costs should be allocated to divisions, operational indirect and genuine central costs. The lack of cost clarity suggests they are not tightly managed.


Funeral directors are required to carry out a complex process with specialist facilities while being sensitive to the deceased. Activities include: transporting and caring for deceased, administration and requisite paper work and carrying out the service. A funeral director will require a mortuary, chapel of rest, hearse, limousines and qualified staff.

There are c. 5.5k FDs in the UK (2013) up from 4.3k in 1998. Dignity has c. 12% share and the Co-op 18%. Most private FDs do c. 100 to 150 funerals pa. This implies annual revenues of c. £500k to £600k. Historically, most customers do not shop around. In 2001 OFT 92% approached one funeral director with location the key factor.

D. operated 108 areas across 10 regions supposedly clustering to maximise vehicle and mortuary efficiency. Most are situated in secondary retails sites (with a reception, shop and chapel of rest) and in London there are four business centres (or hubs for mortuaries and vehicles). In some cases, D. opened smaller satellite operations to gain cluster benefits.

The FD market is in the midst of fundamental change. Historically there was significant price inflation, which led to a CMA investigation in 2019. At the same time, the internet is allowing customers much greater optionality and transparency.

The funeral mix has changed due to Covid and commercial pressures.


2021 interims support my pro-forma; especially quarter 2 with less Covid impact.

Pre-arranged generally cheaper. Full service and simple funeral pricing declined by 12% and 28% respectively between 2017 and 2020. FY20 volumes higher due to Covid. Funeral plans provide c. 30% of funerals. They also provide a significant backlog of c. 20 years at current rates.

Pricing will reduce as customers forsake traditional funerals and price transparency. D aims to win by volume. Competitors will include Beyond (Premium) and Pure (Volume). The current CEO believes funerals are where weddings were over 20 years ago and the industry is undergoing a fundamental shake up that will favour the larger and digitally savvy operators.

It is difficult to value in the midst of flux. I assume that D’s sales will remain flat at c. £200m with volume compensating for price falls. I assume a genuine (fully loaded) 15% EBITA margin, which is consistent with good operators in other “high touch” consumer/care settings. This implies £30m EBITA. However, I have assumed that funerals absorbs c. £10m of overhead that relates to funerals. In that case, the divisional P&L would broadly be:


The assumption is £30m on £200m versus £80m on £215m in 2017. With the overhead adjustment, it is £40m or earnings halving on similar sales. On a like for like basis EBITDA would back to 2004. Gary Channon has ambitious plans to increase to 20% of market, which would be upside.

I value the reformed business at 12x. It still has a strong market position. Size makes it better able to reform to meet consumer needs. Also, backlog underpins earnings and multiple. Therefore, divisional EV of £360m.

Funeral Plans

The customer either pays into a trust or buys a whole of life policy. These practices were investigated in 1989, 1995 and 2001. D.’s trusts fell within exclusion, so were not regulated. In practice requirements including in trust, written, with half trustees independent, independent fund manager and annual accounts were almost the equivalent to regulation. Regulation favours larger providers and D’s current practices probably comply with any future regulation. About 81% are D funerals, with the others provided by third party (usually outside D area of operations).

In 2019, the trusts’ liabilities were c. £978m with assets of £1bn. Less conservative valuation suggests surplus of c. £160m versus (note 30). Accounting recognises margin on delivery not sale of policy, but I do not understand accounting at p109 and p160 of annual report.

Regulation will close the “cowboy” operators and regulation should favour D. and other reputable operators.

D. trusts are unique asset to secure D. funerals. Difficult to value but 3% of AUM suggests £30m. Currently main benefit is funeral backlog, but if D can use “float” to generate investment profits, they could be very valuable.

D. has c. 20% of the UK funeral plan market. Value based on 5% of AUM and leading compliant scheme in the UK with significant growth potential. Assume c. £50m as “platform”. It also assumes that this valuation absorbs £1m of central overhead.


This is mostly covered above. I have added £100m for opex and capex related to tech, digital and physical improvements required to support the divisional valuations above.

Balance Sheet Liabilities

The two main balance sheet concerns are debt and pensions.


The debt summary is as follows.

As per the latest interim report, group has c. £20m EBITDA headroom versus its hard 1.5:1 EBITDA:Debt Service covenant. Debt service is c. 33.2m so the threshold is c. £50m. Last few tests have been 2.12x, 2.15x and 1.99x with headroom of c. £21m of EBITDA. The CEO rightly worries about covenants driving short term measures that would prevent the sensible execution of long term strategy. There are therefore plans to raise capital by partial disposal of Crematoria. “Every 20 years cheap debt will trip you up.” There is a tougher Free Cash Flow to Debt Service dividends etc…

According to the 2021 interims, the debt market is more optimistic about D’s prospects.

Debt Value Jun-21 Dec-20 Jun-20
Gross Debt 537 542 547
Market Value 549 480 481
MV% GD 102% 88% 88%

There are redemption premia, that appear to largely relate to compensation for loss of interest on the B tranche (equivalent Treasury instrument plus 0.5%). The premia are not payable on change of law, tax or enforcement. I suspect that on enforcement the premia would be deemed an unfair preference re other creditors. In the case where the security is obviously worth more than the nominal value of the B Loan note, there would be little commercial advantage in enforcement (i.e. loss premia immediately). In that case, there would be a negotiated settlement closer to the nominal value of the debt. See debt document https://ise-prodnr-eu-west-1-data-integration.s3-eu-west-1.amazonaws.com/legacy/Prospectus+-+Standalone_c1bcdb12-0455-440f-bbdb-b25e5a6f3c48.pdf (pp 55, 199 and 205). As a result, I have assumed no premia in my valuation.


D. has a significant defined benefit pension scheme liability. The previous management, who presumably are major beneficiaries, were very slow to reduce or close access to the scheme. Most management teams in the early 2000s knew DB schemes were problematic, but D. did not start to address the issue until 2013, when it was closed the scheme to virtually all new entrants. Further accruals stopped in 2017.

The current position compared to 2012 (note 29 in A/cs) is as follows.


The assets are reality, but the liabilities the result of a range of actuarial assumptions about returns and mortality that change over time. The note does not give the number of beneficiaries but 33% are active, 27% deferred and 40% current pensioners with an expected average duration of 18 years. The current additional contribution is c. £1.5m pa, but will need to be much greater. In my valuation, I have added another £100m to the liability based on a crude estimate on what would be needed to fund the return spread for another 15 years or so. Also, so-called “buyout” valuations are often 2 or 3 times the actuarial deficit.


Gary Channon the Phoenix investment manager, who is CEO, came across well. Broadcasting - Dignity Plc - Annual General Meeting 2021

After the recent “bloodbath,” GC expects the Board to be Code compliant by March 2022.

In general, while the staff are caring and competent, management is not commercially strong nor are operations equivalent to other consumer sectors. Channon recognises too much management and not enough discretion at local level or maximisation of expertise across the group. He will need to blend funeral, care, consumer, property and financial services expertise to deliver the plan (cf recent Westerleigh hires). Channon speaks encouragingly about principles and standards that will be: codified, taught/trained and inspected.

The previous Board was unsuitable for a complex multi-business with too many insiders and accountants. In 2017, the Board of 8 had 5 accountants, 2 insiders and no fully fledged former CEOs. The bonus was 70% based on profit with price the easiest lever. The results were predictable: short term profit increased; long term value fell.


Phoenix and Gary Channon are well covered elsewhere. The only new point is Channon is launching an IT, Castlenau, with Sir Peter Wood, which will take on the activist positions of his other funds.

Artemis Alpha is a £160m market cap investment trust - the only IT in the Artemis stable. It is managed by John Dodd and Khartik Kumar. John Dodd, Artemis’ founder, is the second largest shareholder with c. 7% or £11.2m invested in the fund (of which 8.6% is invested in D. which implies a c. JD £1m indirect investment in Dignity). Dodd and Channon are a similar age and run very similar strategies (e.g. Dignity, low cost airlines, housebuilders and online delivery). Alpha appear to have carried out site visits etc…

John Jakes is a Monaco-based high net worth who sold his stairlift company, Acorn Mobility Services, for hundreds of millions.

Granular Capital Management are a relatively new hedge fund run by Thiago Mordehachvili.

While not acting in concert, it is not difficult to imagine this group that own nearly 60% having a common understanding on strategy and exit horizon etc… In many cases, the current share price at c. £7 is below or just above the current shareholders’ entry prices.


GC’s strategy is to significantly improve the individual divisions and to integrate them. In doing so, he would create a low-cost funeral/end of life services provider with leading transparent funeral services but which would also feed the investment and crematoria businesses. If he did so, he would create a more competitive and compliant group that would dominate the UK end of life market alongside the Co-op. Similar groups have done very well in the US (e.g. CSI and StoneMor).

The crematoria and funeral plan business require specific plans to adapt and maximise the opportunities regulation provides. The funeral business is a significant operational turnaround and repositioning as low-cost multi-service end of life. GC refers to Munger’s lollapolluza effect of multiple small improvements and better integration.

The major challenge is the operational improvement of a such a large and entrenched group. But, the prize of creating a market leader in a predictable and growing market is significant.

Bear Case

Potential errors and risks include:

  • Crematoria valuation wrong/too high – but, appears to be based on comparables
  • CMA review more onerous – appears relatively clear now. UK regulation generally ineffective (cf: other utilities).
  • Underestimate cost, time and operational complexity of turnaround
  • Management incapable of executing ambitious plan in challenging market
  • Breaches covenant and got debt wrong
  • Pensions worse


This is a messy situation, but worth probably twice as much as current value. Operational complexity is high, but, crucially for me, the market is predictable and stable. Gary Channon seems credible and open, if a little idealistic. Currently controlling shareholders should support turnaround on a public market.

Alpha will discuss D. attractions at their AGM in a few weeks. Gary Channon cannot over sell as he is CEO of D, but Alpha will. Share price is not likely to rise until new model is proven in non-Covid times. The results should become clear by end of 2022.


An excellent analysis.
On the subject of pensions, yes they have a large DB pension which, belatedly, was closed to new entrants. As you state, the deficit is 36m. The company is also making an annual deficit reduction contribution of 2.2m.

However if interest rates start to rise, as many are expecting, then this is good news from a DB pension scheme point of view. A small increase in interest rates can have a large disproprotionate impact on the size of the pension liabilities. The calculations are complicated because it depends on the mix of equities and fixed interest rate scheme assets, hedging of the assets/ liabilities, the mix of pensions in payments vs deferred pensions vs active members, the assumed rates of interest rates, inflation and mortality rates. By memory, even a 1 - 2% increase in interest rate can cause the scheme liabilities to fall by more than 50%.

Having said this, if this will significantly move the needle in your investment case, I think perhaps not.

Best wishes, Ram

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You will be aware from previous posts on this thread that I am bearish on this one.

Playing Devil’s advocate, one of the reasons is the Board:

Gary Channon’s Phoenix CV:

Gary brings over 32 years of business and financial services experience. His career began in Fixed Income Trading at Nikko Securities Europe in 1987. He joined Goldman Sachs in 1989, working in Global Equity Derivative Products Trading. In 1992, Gary joined Nomura International PLC as Head of Equity Derivative Trading. He remained at Nomura International as Co-Head of Equity and Equity Derivatives Trading until moving on to co-found Phoenix.

Gary’s investment approach at Phoenix is long-term, value-based and focused. He looks out for businesses run by competent, honest managers, who act in the interest of shareholders. Ideal companies have strong pricing power to generate an enduring high return on capital. Gary identifies great companies with good management, and waits for the opportunity to invest in them at attractive prices

  • It looks as though GC/Phoenix first invested in 2005/6 when roce poked it’s head above 20 per cent, an all time high both before and afterwards. He clearly made a mistake on the ‘pricing power and enduring high return on capital’ of this one (as many intelligent and experienced people did, to be fair). As an investor, though, should it be a case of once bitten, twice shy?

  • Was it GC’s/Phoenix’s influence which prompted all of the debt in the first place? (there is a lot of financial engineering on his CV). If so, he is abit of a ‘chancer’ in my book, unfortunately.

  • Is GC both Chairman and CEO of Dignity, and CEO of Phoenix? (It looks as though there are only 2 exec directors of Phoenix, currently, and one interim director). How can he possibly complete his Dignity roles and his Phoenix roles to the level expected of a quoted PLC? - there just aren’t enough hours in the day. As you infer, though, he will be recruiting more board members shortly.

  • The interim FD was FD of Cineworld and N Brown, both companies with a laissez-faire attitude to debt, in my book. If both he and GC like endebtedness, this is too risky for me, personally! (No check and balance to the CEO).

  • Strategy - it seems an ‘odd’ policy to sell off Crematoria to get past debt covenants, especially if Crematoria are highly valued assets and the future of the business? An equity raise would be more efficient, and not involve selling assets and then buying them back once debt is reduced?

  • What has changed to increase Dignity’s pricing power in the past few years?

Not trying to stir the pot - I just don’t ‘get it’? I’m probably wrong though…




Hi Mike,

Fantastic write-up. Will have to pick over most of the points later! But on the pension deficit:

I can see what you mean about closing the scheme late (2013!), although what seems to be former local-government staff continue accrue benefits:

Scheme as per the 2020 annual report does not look too horrendous at present. Last year the scheme’s assets generated income of £2.2m, which together with contributions of another £2.2m was £1.1m short of the combined £5.5m benefits/admin costs paid:

Contributing a further £1.1m annually to prevent the scheme’s assets from being eroded (assuming zero asset growth) would not seem material to DTY at present. The unknowable is the level of future benefits to be paid. Closing the scheme in 2013 implies benefits could be still being paid beyond 2070 (BT forecasts paying benefits to 2080!).

DTY’s interims confirmed the latest formal scheme valuation was unfortunately undertaken during the market low:

“The triennial valuation was performed in April 2020. Following the focus of the Group on its strategic direction an extension was applied for and confirmed by the pension regulator until 6 October 2021. An update on the subsequent impact to future annual cash obligations for the Group will be announced in the third quarter Trading Statement.”

The tone suggests high contributions are forthcoming. I am guessing any contribution increase will not be crippling versus the projected EBITA of £30m!


Hi Ram.

All true, but the benefits to be paid in the present day will not change… and the asset income and contributions still ought to combine to cover those benefits every year to prevent any risk of scheme-asset erosion. Also, if interest rates do rise, then arguably asset values should decline. So perhaps the net effect on the overall surplus/deficit position may not change that much!


Hi Maynard

The impact is generally disproportionate. Very crudely, a 1% rise in interest rate may reduce asset values by say 10%, but scheme liabilities by 50%. Numbers are for illustration purposes. Beyond this comment, I’ll leave further explanations to those very clever people called pension scheme actuaries!

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Thanks for thoughts.

I find it very difficult to form a view on DB pensions without all the information. My fear is the spread of returns on assets and growth on liabilities over what seems to be a long period, two thirds of beneficiaries are not pensioners, will be grim. It may be serviceable but it is still a liability to be discharged before shareholders. Perhaps I am a bit conservative on this point, but I cannot see it getting better. They buyout valuation will be around my provisional sum. Good spot re LA employees, probably TUPEd with some crematoria.

anon, I think you are quite right to be sceptical. I was and the rationale is a rather unconvincing: it is a bit of a mess, but a mispriced mess with potential. The management is a key risk and GC is CEO of both and working 7 days a week. Apparently the children have left home, so that’s OK (Mrs C must be delighted). That said, there are many commendable aspects to his communication and disclosure.

In relation to Phoenix’s acquisition prices, my estimate is as follows.

Phoenix Acquired Cum % of total Acq Price
May-20 1% 28% 3% 2.5 0.09
Apr-20 2% 26% 7% 2.5 0.17
Apr-19 2% 24% 7% 7.5 0.51
Mar-19 5% 19% 17% 7.5 1.28
Jan-19 3% 16% 10% 7.0 0.71
Dec-18 6% 11% 20% 10.0 2.01
Oct-18 2% 8% 7% 10.5 0.75
Sep-18 1% 7% 3% 10.5 0.36
Aug-18 1% 7% 3% 10.0 0.31
Jul-18 1% 6% 3% 10.0 0.34
Jan-18 0% 5% 1% 10.0 0.10
Pre 5% 18% 20.0 3.54
29% 10.2

They appear to have built most of their stake after the initial problems came to light, but by their own admission they underestimated them. To be fair, GC hates the debt and would sell a minority in the crematoria (pre improvements) to get rid of or lower debt rather than just pass covenants. Interesting re FD, thanks. I think GC’s rationale is end of life will change and D is well placed. In particular, funeral directors will need to modernise significantly. Rather amusingly he cites a recent success at turning around/modernising a wedding business as a key influence. Next stop, mid-wives.




Yes, you are of course correct on the timing of Phoenix’s investment - apologies.

I must admit I am unsure what I will do with my time when the kids leave - GC’s solution to this problem is a little extreme, though :grinning:

Good luck with it.



Some may have noticed that Dignity recently announced its FY21 results. I won’t go into great detail, but this is looking messier than I feared. As Munger pointed out that turnarounds often don’t turn (or, at the very least the take much longer and cost significantly more).

FY21 was a mixed bag with revenues and underlying profits slightly down. There is a net movement in finance income that I would like to understand better (unusually poorly explained), but the concern mainly relates to the outlook.

The key point is that it is going to get worse before it gets better. To recover market share (and arguably to appease the regulator), as the cornerstone of the new strategy, in Sep 21, Dignity reduced attended funeral prices by c. 18% from £3k to £2.5k per funeral. It is not clear if the price cuts were applied across the estate (could be greater). It will be some time until the volume reaction is known, but in the short-term profits will fall. The excess deaths of the last few years may lead to a reduction over the next few years, which would again reduce revenues.

Capex and costs will rise to support the new strategy. Profits and cash generation will reduce by an unspecified amount.

The group has the burden of a long-term securitisation debt, but got a waiver for the current year. The CEO has always said the capital structure cannot constrain the strategic necessity for change. (See below.)

There is significant operational and cultural change. The management structure has been “inverted” (MBA speak for turned upside down) with the focus on the 12 regions/front line with central functions a pure service centre (IT, marketing, regulation, property etc…).

The CEO writes openly, honestly and compellingly, but there has to be significant doubt about the ability of the current team to deliver a very ambitious turnaround plan. A new CEO will probably arrive this year.

The smart thing would probably be to sell and move on, but this messiness was anticipated. A cornerstone of the investment thesis was that the crematoria (to which none of the above really applies) are worth materially more than the current EV. To release the constraints of the bond structure and, possibly, raise funding for the turnaround, the group will need to realise some of that value (JV, partial sale?), which should highlight the valuation point to the market. I will therefore hold to see what materialises.

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