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Dignity Share - Business Valuation

Dignity share - company valuation 

Table of contents

First of all the disclaimer: I am invested in Dignity PLC. This tends to be a market tight stock where even the smallest purchases can lead to significant price increases. Please note trading location and limit setting if applicable. Nothing I say or write should be considered investment advice. 

Update from 05.01.2023: The position was sold completely at the price of GBX 530 after the takeover offer. Additional purchases in advance resulted in an absolute return of +23.49 % and an IRR of +116.81 %.


Dignity PLC is a perfect example of a company where wrong decisions were obvious for years and yet the board did not deviate from its chosen course. From a peak of 2,600 pence, the company's shares plummeted to 400 pence and now have a market capitalization of only 200 million pounds. Years of mismanagement brought the company to the brink of financial collapse. Now, however, there are strong indications that the bad decisions are a thing of the past and that Dignity could regain its former strength. At the same time, however, there are significant risks that potential shareholders should keep in mind.

Please also have a look at my video:

Into the crisis with eyes wide open

Company profile

Dignity operates in a business segment that traditionally tends to attract fewer investors. In my experience, however, it is precisely here that opportunities often arise that remain hidden from others. Founded in 1994, Dignity has 776 funeral homes, 46 crematoria and 24 cemeteries and says it is the only provider in the UK to offer all the relevant elements of a funeral. This also includes offering funeral plans, which are now a highly regulated market in the UK. So far, so unspectacular. What Dignity caught my attention with was something that may seem counterintuitive to many investors. The company has brought itself to the brink of financial collapse through years of mismanagement. 

Market share and high price 'at' any price

When I have recently discussed the Dignity case with experienced investors, I have encountered two reactions. On the one hand, a lack of understanding for the business decisions and, on the other hand, due to decades of stock market experience, little surprise that executives do not want to leave the wrong course once taken, even when the negative effects are already obvious. But what were the specific wrong decisions?

In order to understand today's investment case, I consider it elementary to understand the mistakes of the past. If we look at sales over the last 10 fiscal years, it becomes apparent what perhaps most people already expected anyway. The funeral business is not one in which big jumps in sales are to be expected. 

Dignity share turnover

However, in a clearly defined market like this one, market share is often the more meaningful measure. In the following, we look at the annual figures up to 2017 in each case, as the share suffered the biggest crash from October 2017 to January 2018, from just under 2,300 to 770 pence. Obviously, the problems that had remained hidden from the masses until then came to light there. However, the problems were already apparent beforehand. Looking only at the market share, I would not have seen any reason for concern. In a business field in which no company can usually excel technologically, there are usually minor fluctuations, which also occurred here. In funerals, market share (Northern Ireland excluded) went from 11.9% up to 12.3% and back down to 11.5% on a 5-year view.

Dignity share market share
Own representation
Book recommendation for beginners*:

At the same time, mind you, the proportion of cremations increased. To put this in perspective, Dignity performed 68,800 funerals and 63,400 cremations in 2017. Consequently, from a market share perspective alone, there were no alarming warning signs either. In terms of revenue per funeral performed, too, we would probably rather assume an encouraging development from the company's point of view. Apparently, the company was able to achieve significantly higher prices per funeral without losing any significant market share. Apparently, price elasticity worked in the company's favor. But only apparently. 

Dignity share sales per funeral
Own representation

The high prices combined with a constant market share were bought dearly by the company in the truest sense of the word. This becomes clear when we look at sales per operated location, i.e. per funeral home, over the same period. From 2013 to 2017, the number of locations grew from 690 to 826, primarily as a result of acquisitions, but sales per location declined from 2015 despite the price increases implemented. Although a good 140 locations had been added, the company performed only marginally more funerals in 2017 (68,800) than in 2013 (68,000 funerals). 

Dignity share Sales per location
Own representation

The company thus entered a negative operating leverage spiral, which gained even more speed in 2018. The company was only able to maintain market share and high prices through acquisitions. The company spent £220 million over 5 years acquiring other funeral homes before cutting back spending in 2018 and then, of necessity, stopping acquisitions altogether.

Dignity Share Acquisitions
Own representation
Book recommendation for advanced students*:

If that weren't devastating enough as a signal, the broad-based acquisitions also had an obvious unpalatable side effect. Net debt rose from just under 300 million pounds to 507 million pounds in the period from 2012 to 2018. What looks like a comfortable plateau here was de facto fatal, as unsurprisingly, a virtually unchanged number of funerals combined with an increased number of sites led to significant pressure on margins and cash flows.

Dignity Share Net Debt
Own representation

The EBITDA margin declined from a high of 37.3 % to 20.3 % in 2019 and has not been able to recover to date. At times, EBITDA was only 2.8 times interest-only payments. Cash flow from operations was one-third from the high. What looks like a recovery in 2020 and 2021 was de facto not driven by operational decisions, but by significant excess mortality related to the COVID 19 pandemic. In 2021, there were a total of 664,000 deaths in the U.K., compared to 663,000 in 2020. By comparison, there were 584,000 deaths in 2019, and 599,000 in 2018. The market share of nearly 12% thus allowed Dignity to once again distribute more burials across the large number of sites and reduce the fixed cost per burial performed. 

From today's perspective, these two years should be viewed particularly critically, because they concealed the problem that had actually been recognized as such by the executives since 2016 at the latest. The market environment had already changed considerably in the run-up to the share crash, and the company was slow to react to the new circumstances even after the share price plummeted. 

Dignity share margins
Falling prices recognized as a challenge and counterfactual traded

After a Trading Update published in November 2017which had already adopted a more cautious tone and warned of the very competitive environment, then came the announcement in January that caused the share price to burst its banks:

Dignity Share Trading Update

I am a largely unemotional investor, but with the lines in connection with the previous decisions, I could understand if investors vent their displeasure at the AGM. By their own admission, the executives have already recognized several things beforehand:

1. that the price environment is changing and customers are switching to lower-priced solutions.

2. that there is too much supply for comparatively steady demand.

3. the decreasing number of burials per site is a problem.

I would agree with the executives on all three points and that is why I am very surprised at the corporate decisions. In the 18 months that the Board has been informed of the new circumstances, £84 million has been spent on acquisitions within the over-supplied industry and 59 new sites have been added. In addition, both market share and revenue per site were already falling as revenue per burial continued to reach new highs. The risc section of the 2016 Annual Report showed how management believed it could avoid this risk. 

With better service. 

At this point, it had long since become apparent that the company's strategy was not working.

Dignity Share Risks
Source: Dignity PLC Annual Report 2016 -

Incidentally, the risc section did not address the risk of lower sales per location, but only the risk of lower sales per burial, which was obviously 'not' Dignity's problem, but the declining sales and market share with the accompanying negative operating leverage.

In the trading update, the concrete announcement was finally made that the prices of the so-called "simple funerals", i.e. low-priced funerals, were to be significantly reduced across the board. This was also noticeable in the turnover per funeral, although the simple funerals previously accounted for only 7% of the total number of funerals. The reason for this was the drastic reduction from the previous average of GBP 2,700 to GBP 2,000 in England & Wales and 1,700 in Scotland.

Dignity Share Sales Per Funeral Current
Own representation

From my possibly limited point of view, this is pure actionism. The solution from the business management textbook would probably have been to let small 'test balloons' go up, i.e. regional price adjustments and subsequent observation of how market share, mix, sales and contribution margin develop. From this, deductive conclusions can be drawn that are as general as possible and then rolled out across the board. This is exactly what I would have expected from the CEO with an MBA and former CFO position, who has been a leader in the company since 2002. This is what desperation might look like.

The effects of this approach are clearly reflected in the subsequent development of sales per location and funeral. Both continued to show a clear downward trend. The hope of achieving a degression in fixed costs was not fulfilled. Market share also rose only slightly to 11.9 % and fell again to 11.7 % in 2019. 

Dignity Share Sales Per Funeral and Location
Own representation

At the same time, Dignity started to close sites. De facto, the company fell back to about where it was in 2015, but poorer by 80 million spent on acquisitions. How little the operating result in 2020 and 2021 can be attributed to the business decisions can be seen in the significantly increased number of funerals in these years in connection with the COVID 19 pandemic. Here, significantly increased demand met Dignity's still (too) large capacity. The market share initially rose to 12% and then fell back to 11.8% in 2021. 

Dignity share Number of locations
Own representation

Without wishing to sound disrespectful, it is not surprising in this industry that higher demand in two years almost inevitably leads to a decrease in the following years, and this is precisely what happened, as the Trading Update for Q1 this year shows. The number of deaths fell from 204,000 to 166,000 and this had a correspondingly significant impact on the operating profit of funeral homes. But in the meantime something had changed. Just here lies among other things also the reason for the 'today's' investment case.

Dignity Share Q1 - 2022

The investment case

An activist investor takes the helm

Dignity first appeared on my radar because they reported an impairment charge on goodwill for 2020 and 2021, i.e. a write-down related to acquisitions. At the time, I was actively looking for such write-downs, as they are usually a symptom of troubled companies that often experience downward price exaggerations. The problems of the past and their causes were quickly apparent to me, but an investment case did not yet emerge from them. I only became interested when I read that an activist investor had gradually increased his stake in the company, and had done so immediately after the company's share price plummeted. At the end of 2018, Phoenix Asset Management had already 16.08 % of the shares purchased. Today, Phoenix is the company's largest shareholder with 29.4 %. I don't like to deal with power struggles in detail, so I'll give you the rest of the story shortly.

Phoenix initially appeared cooperative and above all brought fundamentally lower or more dynamic prices to the table as a proposal. Particularly in the case of greater regulation of funeral plans, Phoenix virtually alerted the Board to action. The proposals did not adequately address the Board, and Executive Chairman Clive Whiley in particular, in Phoenix's view. Phoenix had previously added a director from its own team to the board. In general, Phoenix apparently got the impression, that the board was incapable of acting and was more interested in financial cosmetics than in sustainable changes in terms of strategic direction. A power struggle ensued, from which Phoenix emerged as the winner in terms of votes. Whiley was ousted with 55% of the vote, and the remaining non-executive directors voluntarily left the board. Gary Channon, Phoenix's CIO, was elected as interim CEO. Without wishing to take a clear position, I did not previously have the impression that Phoenix and its representatives sought conflict with the Board and acted in an advisory rather than a controlling capacity. Phoenix's recent behavior reinforces that impression, but I don't want to prejudge it. 

A new vision for Dignity

In the run-up to the vote on April 22, 2021, Phoenix published a letter addressed to shareholders under the title "A Vision for Dignity". In this letter, they addressed a number of concrete changes that they would like to implement and address in detail in the event of a successful vote at the Annual General Meeting, as well as impending risks. 

The straw that ultimately broke the camel's back between the old and new boards was also an issue that Phoenix addressed in the new plan. Funeral plans, or burial contracts. The FCA had been planning to regulate these contracts for a long time, since there had already been an increasing number of cases in the UK in which customers were left out in the cold due to dubious dealings on the part of individual companies, even though they had paid for a pension plan. The long-awaited regulation was then recently enacted on July 29, 2022, and Dignity was one of 26 companies approved to sell funeral plans under the new regulations. The importance of this should not be underestimated as it is a sure funeral in the future for Dignity.

Dignity share FCA
Source: FCA regulation boosts consumer protection in the funeral plans market

In connection with the funeral plans, the corresponding trust was also addressed with a portion of the money paid in advance, which now amounts to 1.1 billion. For people who have looked for the figures directly on their own after my first lines, the hint at this point may be particularly important, since the ratios on various pages do not address this correctly, of course, as usual. Therefore, I separate here similar to car manufacturers between the corresponding financial assets and other assets. It is precisely through this trust that no returns have been generated in the recent past. Here, too, Phoenix saw an opportunity to reverse this trend in the future. From today's point of view also justified. In 2021, Dignity generated a return of 9.1 % on the trust assets and aims to keep the return 3 % above inflation over the long term. The trust is not something I primarily look at until I get the impression that it could become a problem, so I am anticipating 'success' at this point. As of 01/01/2022, the related assets accounted for 136 % of the actuarial liabilities, which was an important component in the FCA approval. Given this, there is no cause for concern in the short term.

Dignity Share Trust Return
Source:Dignity PLC Annual Report 2021 -

Phoenix also cited Dignity's distribution network as a valuable asset if used correctly. Competitive prices and local management that acts as independently as possible are relevant in order to be perceived as an organic part of the local communities. In addition, independent companies with a good reputation in regions where Dignity is not yet active should be offered the opportunity to join Dignity's network. In addition, the findings of tests already carried out and those to be carried out in the future with regard to price, offer, etc. should be extended to the entire service network.

In a sense, Phoenix considered the crematoria to be the fillet piece of the entire company. Here, Phoenix wanted to offer direct cremations to enable cost-effective burials. In this area, Dignity is the market leader, which creates great opportunities, since the demand for direct cremations is increasing and Dignity already has a large network of crematoria and has been granted permits for additional crematoria. Phoenix considered this division alone to be already more valuable than the entire enterprise value and brought up a possible spin-off, which could reduce net debt accordingly. Up to this point, I have deliberately not talked about crematoria, as they were not part of the problem in the past, but are now clearly part of the solution for the future or the investment case in the future. Unlike the funeral homes, there was a sustained increase in market share and underlying operating profit here as the overall cremation market grew. Incidentally, the 47 million profit shown here came on underlying revenue of around 85 million. Currently, the company has 46 crematoria already operating.  

Dignity share crematoria key figures
Source:Dignity Annual General Meeting Presentation 2022 -

The crematoria are therefore highly lucrative for Dignity, and here again the importance of a broad service network is demonstrated, as the funeral homes can transfer directly to their own crematoria. Funeral plans, funeral homes, its own casket production, its own hearses, its own cemeteries and crematoria. Dignity completely covers the end-of-life segment, and it is here that the importance of high utilization and the associated opportunities through fixed cost degression become apparent. 

With regard to the underlying profit, it should be noted that the overhead costs including marketing (which would actually be costs of acquisition, but Dignity reports them as such) are excluded from the respective segments. These also rose very strongly in the past. Phoenix also considered these costs to be clearly too high and, in their view, made concrete mistakes in the decision-making process, since Dignity is not a company that needs a large IT department, for example. Excluding marketing, these costs should rather be 5-7% instead of 12%.

Dignity Share Central Overheads
Source:Dignity Annual General Meeting Presentation 2022 -

Phoenix concluded by making it clear that this was a transformation that would take years to complete.

Successful implementation?

Phoenix has now enjoyed more than a year of investor confidence and has been able to make appropriate changes. In June, interim CEO Gary Channon relinquished control to Kate Davidson, who had previously served Dignity from 2010-2020. So Phoenix kept its word on board and corporate control, but how successful have the other ventures been? From today's perspective, we are very fortunate not to have to rely solely on Phoenix's plans, but to be able to check concretely how successful the implementation was within the 1 1/2 years.

If we look at the figures for 2021, we should first of all be aware that Phoenix only took over the helm completely in the middle of last year and was able to implement the new strategy. Nevertheless, it is striking that the underlying operating profit also declined in 2021, although the mortality figures were still high. Market share also declined.

Dignity Share Income Statement 2021
Source:Dignity PLC Annual Report 2021 -

When we look at the cash flow statement, we first notice two things. Obviously, there are a whole series of non-cash expenses that will no longer be incurred in the future and will therefore no longer affect income. These include the impairment charges, i.e. the amortization of goodwill, but also the amortization of trade names, which also result from the acquisitions. On the other hand, the positive effect on net income of the higher fair value of the trust assets, which is non-cash, should be taken into account.

In addition, the significant shifts in working capital are striking. In my opinion, these should always be considered separately, as the shifts are only of a temporary nature, especially in a company like Dignity that is not growing. These had a negative effect on cash flow from operating activities of 27.7 million.

Cash flow
Source:Dignity PLC Annual Report 2021 -

After deduction of taxes and finance costs, the non-adjusted net operating cash flow amounts to 22.4 million.

Dignity Share Cash Flow Statement
Source:Dignity PLC Annual Report 2021 -

Here, as already mentioned, I would add the shifts in working capital of 27.7 million pounds and would thus arrive at an adjusted cash flow of 50.1 million. If I wanted to calculate the free cash flow at this point, I could use the actual capital expenditures plus principal payments for the finance leases as a basis, but since I want to show the current status without any small or higher investments, it seems more intuitive to me to use the current depreciation and amortization as a basis, since I want to show the maintenance CapEx.

16.5 million FCF at an enterprise value of 775 million (leases and pensions included) is not something that normally arouses the interest of investors. Mockingly, we could now say that Phoenix has made quite a big fuss about the fact that in the end they can't do any better than the previous executives, but precisely this comparison is troublesome, since completely different circumstances prevail and Phoenix made it clear from the very beginning that it is not about cosmetic changes to the key figures, but long-term shareholder value.

Dignity share Free cash flow
Own representation
Burdensome aspects & first positive signs of the new strategy

A significant factor in the operating profit of the funeral business (I would like to point out once again that this is considered separately from the crematoria and funeral plans) was that the underlying sales declined. The background to this was that in 2020, for the most part, funerals with mourners were not possible. It was not until 2021 that this was slowly made possible again. The decline in sales in Q4-2021 was due to the new pricing strategy implemented in this period. Among other things, a higher percentage of direct cremations that Phoenix envisioned in its Dignity vision. These took up 6% of the total volume mix. 

Dignity share Underlying revenue
Source:Dignity Annual General Meeting Presentation 2022 -

In terms of how to proceed with the pricing strategies, Dignity then actually acts according to the textbook and lets the 'test balloons' go up. Two different tests were conducted at 40 sites across the UK. Starting in September 2021 and running through calendar week 20 of the current year, the impact of Dignity pricing the region lower than all competitors was tested. This compares to the pilot of the actual preferred strategy going forward, where no low price strategy was applied, but the mix was appropriately price sensitive. 

In the case of the former, volume or market share increased very strongly, but sales increased only weakly. In the case of the pilot, both sales and market share increased. An apparent success in the overall goal of moving into positive operating leverage, although it will weigh on operating profit for the time being. However, Phoenix and its representatives communicated transparently here from the beginning and still see pricing at an early stage.

Dignity Share Price Trials
Source:Dignity Annual General Meeting Presentation 2022 -

Unsurprisingly, Phoenix has also started to close sites where they saw no chance of them making a positive contribution with the new direction and would therefore only put pressure on margins. By the next half of 2022, it is likely that only 700 sites will still exist.

Dignity share Current number of locations
Source:Dignity Annual General Meeting Presentation 2022 -

Although Phoenix repeatedly emphasizes that the transformation will take time, it is already apparent that, unlike under the old management, the price changes have been successful in terms of pure market share. This increased significantly in Q1 2022 for both funeral homes and crematoria. However, the lower number of deaths compared to previous years, which is particularly noticeable in the significantly lower volumes at higher market share, had a significant impact on operating profit. This is a component that will definitely have a negative impact in the short to medium term.

Dignity Share Q1 Performance
Source: Dignity Annual General Meeting Presentation 2022 -

Another burdening component is the actual Maintenance Capital Expenditures. The previous Executives had reduced the expenditures to the limit. In 2019 to 1.1 million and in 2020 to 4.9 million. Phoenix saw an urgent need for action here and significantly increased the corresponding expenditures to a total of 17.6 million. Of the other increased expenditures, those for new crematoria were particularly relevant in order to further expand Dignity's position in this area. 

Overall, we can concede to Phoenix that they are obviously not interested in achieving purely optical improvements in the key figures, but actually want to implement a plan that will sustainably align the company differently. The lower mortality rates together with the higher expenses and lower prices is a combination that seems to be quite dangerous if the new strategy does not work out, although positive signs can already be seen.

Away from these components, many other upheavals are underway that have nothing to do with price and direct investment, but which I will only outline briefly because they are not objectively ascertainable for me. Basically, under new CEO Kate Davidson, Dignity wants to return more power to local managers and support them primarily with data. Managers are consequently to become more like entrepreneurs. In addition, extensive re-brandings and modern social media presences have been implemented, which are intended to increase brand awareness for the local brands under the Dignity umbrella. Overall, one gets the impression that Dignity has now caught up within one year what was missed before.

Dignity Share Capex
Source: Dignity Annual General Meeting Presentation 2022 -
Dignity Share Strategy
Source: Dignity Annual General Meeting Presentation 2022 -
Further risk - covenants

One risk apart from the high level of debt that I have not mentioned so far, but which is certainly relevant, is the covenants of the Class A bonds. These require Dignity's EBITDA to be at least 1.5 times higher (GBP 51 million) than interest and principal. At the end of 2021, EBITDA was 2.13 times higher. If it fell below the 1.5 threshold, it would be considered a default and bondholders would take de jure or de facto control of Dignity, depending on how you look at it. From experience, I can say that it becomes painful for a share when management has to work for the bondholders instead of the shareholders by necessity.

Dignity Share Bonds
Source:Dignity PLC Annual Report 2021 -

However, in light of lower death rates, Dignity had negotiated a waiver of the covenants for 2022 with the bondholders to buy time to implement the new strategy. At the AGM, Channon then indicated that they were working with the bondholders on a long-term solution to improve the company's capital structure, which included the crematoria. On September 7 published a more concrete communication. Dignity made a proposal to the bondholders to sell 7 crematoria (Possibly in the form of a sale-and-leaseback agreement). and to repay at least 70 million to the bondholders. Bondholders indicated their agreement and are expected to formally approve the transaction on September 29, the day before Dignity announces its half-year results.

The company hopes this will give it greater flexibility in implementing its new strategy. Once again, this indicates that operating profits are not expected to bubble up again any time soon. It is possible, however, that the sale of the 7 crematoria at a correspondingly high price could also be the decisive signal to the market that a significantly higher value must be assigned to this division.


Since a spin-off of the crematoria was originally discussed by Phoenix and the current executives are apparently prepared to use the value of these, a sum-of-the-parts valuation seems to me to be the right approach here. Since the trading update for Q1 is not meaningful enough, I will refer to the figures of the Annual Report 2021 in the following, which, however, do not adequately reflect the strategic changes. I will incorporate this fact in such a way that I tend to assume no operational improvements, but adjust for non-cash expenses that will be eliminated in the future. In addition, I look at underlying revenues to filter out the effects of the trust, which obscure the view of the operating strength of the divisions.

The crematoria

I am not yet including the potential sale of the 7 crematoria here, as we do not yet know how quickly a buyer can be found and at what price. Phoenix assigned a total value of £1.2 to £1.6 billion to the crematoria in mid-2021. Intuitively, the assigned EBITDA multiple seemed too optimistic to me and I wanted to take my usual cautious approach.

Dignity share crematoria rating phoenix

The crematoria are without question an extremely lucrative business. In 2021, Dignity achieved an operating margin of 54.4% based on underlying operating revenue. Therefore, in principle, it does not seem obvious to simply put the multiple of the "Funeral Home" peer group above the EBITDA of the division. I am not aware of a pure crematorium listing, so I decided to take the highest EV/EBITDA multiple from the peer group at 13.8. Knowing that Phoenix is quite good with its multiple of 20. tends is closer to the truth.

Furthermore, I wanted to depict the actual state, i.e. without planned crematoria, for which, as far as I know, there was no more update. The sale of existing crematoria does not have to contradict the construction of new ones, since these building permits are also heavily regulated and this opportunity tends to be used more. I also did not take into account possible improvements in operations. Based on the Annual Report, the underlying profit before depreciation and amortization was 54.5 million, which is already above the originally assumed 50 million and thus already reflects operating increases. This resulted in a figure of GBP 752 million. 

54.5 million EBITDA x 13.8 = GBP 752 million

Assuming an enterprise value of 829 million (including leases and pensions), the crematoria alone almost completely cover the value of the company even under these cautious assumptions. If we take Phoenix's multiple as a basis and include the planned crematoria, we arrive at a value of GBP 1.23 billion.

61.6 million EBITDA x 20 = GBP 1,232 million

Funeral Services

Funeral Services was obviously the division that primarily brought Dignity into its current situation. The operating result here continues to be burdened by high non-cash expenses, which will be eliminated in the future. These include the following aspects:

Dignity Share One-Offs
Own representation

Book recommendation for very far (!) advanced students:

Overall, this results in underlying EBITDA of 67.6 million. In relation to underlying revenue, this represents an underlying EBITDA margin ofTP3T 33.481. In the past, the margin here has been relatively constant at over 40%. However, it seems wrong to me to assume this even in an optimistic scenario, as Dignity did not adapt to the new pricing conditions at that time and maintained its prices while acquisitions secured market share. 

Dignity share 2016 EBITDA
Source: Dignity PLC Annual Report 2016 -

I include the Central Overheads of 37.2 million at this point, as the majority of this was almost certainly attributable to Funeral Services. I am considerably more cautious about the EBITDA multiple for Funeral Services. I had previously read two valuations that valued Funeral Services based on peers and/or Dignity's historical multiple, even though the crematories were previously valued separately. However, I am definitely more than critical of that, since the peers themselves operate crematoria and the historical multiples include the crematoria. A multiple of 6 seems appropriate to me, as this is definitely a market with barriers to entry and Dignity is the largest player in this fundamentally non-cyclical, fragmented market. 

(67.6 million underlying EBITDA - 37.2 million central overheads) x 6 = GBP 182 million

The EBITDA margin after overheads in this scenario is 18.4%. The peers consistently achieve higher EBITDA margins, but these also include crematoria. Thus, the prospect of a similar margin would distort the result. Looking for a suitable example from the peer group I found InvoCare, which also list Crematories and Funeral Services separately. The company achieves similar EBITDA margins on crematories as Dignity and 26% EBITDA on their Funeral Services. I am under no illusion here that the two companies are comparable 1 to 1, but have no other reasonable point of reference to map a reasonable valuation corridor. 26% seems reasonable to me primarily because Phoenix wants to reduce overhead costs significantly on a pro-rata basis. This gives a value of £315 million.

52.5 million EBITDA x 6 = GBP 315 million

Funeral Trust

I still have a hard time valuing the trust, as it has not generated a return after inflation in the distant past and has naturally been subject to large fluctuations in the last two years. Although I consider funeral plans to be a fundamental part of Dignity's future, as it can secure market share in advance in this regulated market, I do not include the returns generated in my case. Dignity itself expects to outperform funeral cost inflation by 3% over the long term. Since valuation is only marginally relevant to the overall outcome, I do not include it in the second case either.

Other ingredients

I have deliberately integrated the company's own service fleet and coffin production, which according to the executives will also supply other companies in the future, into Funeral Services here, as they can be valued purely on the basis of speculation, despite the capacity utilization and volume figures. The same applies to the planned real estate sales.


Including the components mentioned above, I arrive at a value of GBP 7.14 per share and thus at an upside potential of 88% under a cautious view that largely reflects the actual situation. I emphasize again: This is the actual situation based on the Annual Report 2021 and does not include the possibility of a significant deterioration of the figures, which is, however, likely in the short term due to the far-reaching changes. 

The example of Dignity shows how much changes in the valuation of assets can affect heavily indebted companies. With a market cap of just under 200 million, even a small percentage increase in enterprise value from the current 775 to 934 million pounds can trigger a significant price movement. If the 7 crematoria could be sold at a correspondingly high price, this would probably lead to a revaluation of the remaining crematoria and the entire company. This is my speculation for this share. Case 2" in my calculation includes potential operational improvements, which are not improbable but speculative. 

Dignity Share Sum of the Parts Valuation
Own representation


Dignity is a high-risk investment. The change in the company, while urgent, coincides with low mortality rates which, combined with lower prices and higher CapEx, create significant pressure on margins. However, from another perspective, this is precisely why I believe that the current management is pursuing a concrete plan in which they have asked for time. Obviously, for the time being, it's not about cosmetic changes to the financials, but a concrete strategy that is being implemented across the company. I don't think success is either certain or likely, but the mistakes of the past have obviously been accurately analyzed and the measures address them in a comprehensible way. With the valuation of this segment from the buyer's side resulting from the sale of the crematoria, it will also become clear whether Phoenix's assumptions were correct and this would act as a catalyst for the share price. However, even regardless of this, there is a lot of potential for Dignity to revalue the company through positive operating leverage. I don't expect too much from the half-year numbers released on September 30. Given the recent high market share, Channon had already put the brakes on expectations somewhat at the AGM. 

If the new strategy does not work out and the sale of the crematoria does not achieve the desired success, there is a high probability that the Dignity share will fall to 0.- due to the high level of debt. 

Disclosure: I am invested in Dignity PLC with an average entry price of 4.07 GBP. The stock accounts for 6.25% in my portfolio as of today.

Update from 05.01.2023: The position was sold completely at the price of GBX 530 after the takeover offer. Additional purchases in advance resulted in an absolute return of +23.49 % and an IRR of +116.81 %.

My book recommendations* for stock valuation

For beginners:
For advanced users:
For advanced users:

For very far (!) advanced users:

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