Investment Column: Dignity's shares need an extra lease of life

Dignity; Shanks Group; Clarkson


Our view: Hold



Share price: 678p (+0.5p)

Despite the shockingly cold weather this winter, fewer elderly people have died since 1 January than passed away in the first quarter of 2009, figures show. And remarkably, despite all the hullabaloo about swine flu, one of the main reasons for the low death rate is the unusually low number of flu cases.

This, of course, has been bad news for Dignity, Britain's biggest chain of funeral directors. Nevertheless, the company said yesterday it was upbeat about its prospects for 2010 as it reported a 6 per cent increase in profits last year.

Dignity's business model is simple: it goes around the country buying up highly regarded, independent undertakers on the high street, and then does nothing to alter them. Once in situ, it can expect a steady stream of business and we reckon that investors can do pretty well backing the group. First and foremost, Dignity has increased its full-year dividend to 8.07p per share. The yield, at 2 per cent, is hardly that exciting, but it is moving in the right direction. It is our view that, with £46m in cash on the balance sheet and debts at manageable levels, Dignity should return more to its shareholders.

The group argues that the money can be better spent on acquisitions, but the dividend is important for Dignity investors. The company was always seen as a safe punt during the downturn because, let's face it, people do not stop dying during a recession. Nonetheless, as markets have improved, investors have diverted more capital to the likes of the fly-by-night banks and miners.

Dignity's shares have jumped by just 10 per cent the past year, suggesting to us they are fairly valued, trading on a 2010 price-to-earnings ratio of 15.5 times. In the longer term, the so-called "baby boomers" are expected to start dying off in large numbers over the next few years, which will provide a fillip for Dignity's businesses. In the shorter term, while the company is very much alive and kicking, we reckon investors should pause. Hold.

Shanks Group

Our view: Buy

Share price: 104p (-4.4p)

Shanks has had a rough few days. The waste management company has seen its share price slump, then soar and come under pressure again after it broke off talks with the buyout specialist Carlyle.

When Shanks first said earlier this week that it was walking away from Carlyle, its stock fell 15 per cent. The share price reversed course in the subsequent session, rallying as the bargain hunters moved in. Yesterday, Carlyle also confirmed that it was backing off and had no current intention of making an offer, which sent Shanks back down again.

Bid or no bid, the bargain hunting is the part of the story that interests us, because the volatility seems to have left Shanks fundamentally undervalued. As Goldman Sachs analysts pointed out on Tuesday, the initial sell-off left Shanks's stock at a discount to both the sector and to its own historical multiples (it currently trades on a multiple of 8.67 times forecasts for the full year, according to Reuters).

Shanks is heavily exposed to its non-municipal waste business, which is sensitive to ups and downs in factory output. With the economy on the mend in the UK and in the other parts of Europe where Shanks operates, this exposure should pay off and boost the company's earnings. Those still holding out for deal activity may also get their wish, with Goldman refusing to rule out the possibility the other day. Buy.

Clarkson

Our view: Buy

Share price: 865p (+35p)

The shipping services company Clarkson hopes to have put the recession behind it. Its financial results for 2009, published yesterday, showed its revenues fell 29 per cent to £177m and pre-tax profits slumped 43 per cent to £22.5m. It was hit hard by a £21m exceptional charge settling a legal case.

Behind the tricky numbers, though, Clarkson has plenty of cash, has gained market share in the downturn and, as a sign of confidence, chose to increase its dividend by 1p to 43p. More vitally still, the commodities markets are improving, which has led to an uptick in business.

Clarkson's shares have already risen by about 90p in recent weeks, but there is still more to go. Panmure estimates put the price-to-earnings ratio of the stock at about seven times, based on this year's revenue forecasts. And when the impact of last year's investment cuts across both the shipping and commodities sectors start to feed through in a few years' time, business for Clarkson will be booming again. Buy.

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
PROMOTED VIDEO
Voices
Joseph Kynaston Reeves arguing with Russell Brand outside the RBS’s London offices on Friday
voicesDJ Taylor: The great tradition of St Paul and Zola reached its nadir with a worker's rant to Russell Brand
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
News
i100
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
News
Xander van der Burgt, at the Royal Botanic Gardens, Kew
scienceA Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick