G4S and Dignity shares plunge

It’s been an awful few years for this pair, and things were no better after today’s results.

G4S (LSE:GFS) and Dignity (LSE:DTY) have become the latest high-profile stocks to slide in value this week, although for once the blame can't be pinned on the coronavirus outbreak.

The pair were punished following their respective annual results, with G4S now trading at a 16-year low after its bottom-line loss helped to lower shares by more than a 25%.

Funeralcare firm Dignity was at its lowest level since 2005 after it put parts of its transformation plan on hold pending the result of the Competition and Markets Authority's (CMA) investigation into the industry.

Dignity, which has warned that the outcome of the inquiry could materially impact the group, said anticipated cost savings will be delayed as a result.

The 22% slide for shares to just 386p is all the more remarkable given that Dignity was once regarded as the ultimate defensive stock after many years trading between 2,000p and 2,600p.

The shares did briefly find some support during Monday's market turmoil as investors bet on a rise in the death rate caused by coronavirus. Overall, however, the number of deaths in the UK fell 3% last year to 584,000 while the number of funeral directors has increased rapidly.

Dignity pointed out in today's results that there are around 30 per cent fewer deaths per funeral director in the UK compared to 25 years ago. This is why Dignity continues to see the CMA investigation as positive for industry standards and its own long-term prospects, even if it will be in the cross-fire should the regulator decide to impose some form of price control. 

A provisional report from the CMA is expected in the next couple of months, with the final report issued by September. The uncertainty has already put paid to the company's dividend, while underlying earnings per share fell by 29% to 60.6p in today's annual results. 

Dignity's market share in funeral services remains robust at around 11.6%, which it said demonstrated a positive response to changes made to its pricing and service offer in January 2018. Average income per funeral was down from £2,973 to £2,930. 

At G4S, investors are still getting to grips with last month's sale of the company's cash transportation business to US rival Brinks for £727 million. The cash business in the UK wasn't part of the deal, leading to a one-off non-cash charge for goodwill impairment of £291 million in today's results.

CEO Ashley Almanza said the deal “greatly enhanced” the company's strategic, commercial and operational focus around its remaining security operations, while it should also help to reduce its debt to earnings ratio to 2-2.5 times from 2.88 times in today's results.

This failed to placate investors, however, as shares extended the declines seen in the past month. They have halved in value since February, driven partly by fears over how coronavirus might impact demand. Almanza said the effect on the group so far had been minimal. 

Underlying profits of £501 million were unchanged on last year but still 3% short of consensus forecasts. The final dividend was pegged at 6.11p as the group looks to rebuild dividend cover to two times from the 1.75x seen currently.

Analysts at UBS had a price target of 235p prior to today's results, with Morgan Stanley at 205p.