Companies: DTY   

Dignity, the funeral-related services provider, remains upbeat following a strong set of results ahead of expectations for the half to June.

Despite a lower than anticipated death rate, although chief executive Peter Hindley rather darkly assures that this will balance out over the long-term, the company achieved an increase in revenue of 5% to £78.3m, generating profit before tax of £17.2m (£15.3m), up 12.4%, with basic EPS for the period reported at 14.9p (13.8p).

In February the undertakers raised £86m through an issue of secured notes, allowing for the return £1 per share to shareholders in August, totaling £80m. Further to this, a 10% increased interim dividend of 3.03p per share has been proposed, maintaining the company’s initiative to ‘maximise shareholder returns’.

With an obviously sustainable source of revenue the company can focus on maintaining its market share. This is done in two ways. Firstly, through word of mouth advertising, as recommendations from satisfied and well-treated customers is an important source of this for Dignity and with 90% of satisfaction survey respondents saying that they would endorse the services, according to Hindley, Dignity remains confident for the full year. Secondly, the company operates an active acquisition policy, 'always looking to buy what’s available'. Hindley says that the board prefer to let potential targets approach them so as not to ‘force the issue’ and ‘end up paying too much’ - investors can expect more acquisitions in the coming months.

Analysts forecast EPS growth of 8% to 26.03p for the full year, rising a further 18% next year to 30.71p. We recommended the shares as a buy at 351.5p back at the start of 2005. They now trade at 593p putting the company on a forward p/e of 22.8 for the year and 19.3 for 2007. Some profit taking might be prudent but stay in for more upside. Hold.