Doing a Dignity — Who’s Next?
There’s a well worn path…
- … and it leads to a cliff edge
- Many public companies, in search of forever-growth, have walked said path
- Recent examples include Tesco’s c£250m profit misstatement in 2014, Restaurant Group’s profit warnings in 2016, and, most recently, Dignity’s slightly undignified tumble
What are the signs?
- The company is usually described habitually and unthinkingly as high quality and with strong competitive moats
- An over-emphasis on margin, perhaps at the exclusion of other, longer-term metrics
- A track record of maxing out prices and under-investing in its estate
- Sometimes accompanied by management rhetoric depicting ‘challenging’ market conditions but equally as likely to come as a bolt from the blue
So who’s next?
- We note the current online migration of retail. Demand for physical units is softening
- And yet Intu Properties has achieved ‘strong results in a challenging retail environment’
- Despite this challenging retail environment, Intu is charging its new long-term leases at 7% ahead of previous rents…
- The above sounds a little like maxing out to us — we are sceptical of the sustainability of this increase in net income
- Which in turn makes us wonder what motivated the group’s merger with Hammerson — inspiration or desperation?