Good morning,

I’m James, co-founder of Funeralbooker, a UK price comparison website for funeral directors.

This morning, we published a comprehensive short sell report on Dignity PLC, a UK-listed funeral services provider. This report is based on what we have learnt in the past 3-years building a business where people can quickly find funeral prices online across the country.

As a promoter of price transparency, we are a direct threat to Dignity’s incumbent position as a high-priced funeral chain. Fundamentally, we think Dignity will not be able to maintain expected pricing levels going forward and as such is overvalued.

We have researched and written a conviction report and have an open short position on Dignity: https://funeralbooker.com/blog...

I have included the summary of our argument below and you can read the full report here: https://funeralbooker.com/blog...

Kind regards,

James Dunn


SHORT THESIS SUMMARY

We believe that Dignity is currently valued based upon a view that EPS will continue to grow through a predictable increase in revenue and profits. We do not believe that this will be the case going forward and set out our argument as follows.

Between 2005 and 2016 (“the historical period”) the Company delivered:
  • Revenue growth from £143 to £314 million (7.4% cagr)
  • Operating profit growth from £42 to £98 million (8.1% cagr)
  • EPS growth from 22.4p to 119.8p (16.5% cagr)
There have been two drivers of this historical performance:
  • a 53% increase in the number of branches (3.9% cagr); and
  • an 81% increase in pricing (5.6% cagr)
The former is well publicised and reported on by Management. The latter, however, is not discussed publicly or reported on in annual reports. There are no KPIs reported relating to pricing. To fully understand historical performance, and form a view on future prospects, it is necessary to analyse how both branch expansion and pricing have played their respective parts in Dignity’s growth story.

Our view on the historical contributions of these two drivers is that:
  • Branch expansion has functioned to keep the number of funerals performed steady, offsetting a +30% collapse in branch productivity
    • Dignity’s market share has been static at c.12% between 2005-16
    • Branch productivity (funerals performed per location) has collapsed by more than 30% from 129/year in 2005 to 87/year at H1 2017
    • Newly acquired locations typically provide around 150 funerals per year initially, offsetting customer losses elsewhere in the…

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