Dignity (LSE:DTY) PLC, the funeral service provider, is struggling to fund capital expenditure through cash flow, according to analysts, as the business reported a loss for 2022.
Pre-tax losses slumped to £329mln in 2022 having posted underlying profits of £32mln the year prior.
“The sharp fall in profits was largely down to pricing and higher costs, as well as a 4% reduction in the death rate,” said UK broker, Peel Hunt.
The inability to fund its purchasing and maintenance of assets has led to the company taking out a £50mln loan facility from Phoenix at a 7% coupon.
Phoenix is part of the investment consortium that agreed to take over the business in January this year.
The consortium, which also includes SPWOneV Ltd and Castelnau Group, agreed to a £289mln deal with the Birmingham-based company.
The offer works out at 550p per share, with the buyers paying 6% more than the current share price.
However, whether listed or private the company is struggling with varying headwinds.
Customers have begun switching from typical memorials to direct cremations, which has led to a £196mln impairment charge on its funeral service business, the investment bank added.
Net debt has now increased from £471mln to £509mln.
Dignity (LSE:DTY) has also been unable to grow market share, with Peel Hunt reporting only a 0.1 percentage point rise to its 11.9% stake in the sector.
Peel Hunt rates the stock a ‘hold’ targeting a 5p drop to its current 530p share price – with it remaining very unlikely that the value will rise above the 550p offer mark.
