Doing a Dignity — Who’s Next?

March 1 2018

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?lipstick-on-a-pig

  • 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?