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.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
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

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker