DTY (Dignity PLC) is engaged in funeral services, crematoria and pre-arranged funeral plans.
First off: I’d like to state my scepticism about "pre-need" plans. It is an admittedly clever way of getting money up front from people. My problem is that it seems "too clever for it’s own good". Beware the financial engineer.
Having got that off my chest, DTY is interesting from a "moat" perspective. Their operating margins are phenomenal.
Then I took a look at the debt situation. Oh. It has a gearing of 1818% (no, I haven’t forgotten any decimal points). "Significant if true", as my fond of quote of Ben Graham goes. In the finals reported on 07-Mar-2012, I see that net debt is £312m, against net cash flows of £38m. No wonder the ROE comes in at 175%. Far far too much debt even for a stable company. This rules it out from any further consideration immediately, and I think current shareholders should think carefully about the risks they are taking. Some posters on ADVN are pointing out the debt, although many are ignoring or downplaying it.
Richard Beddard wrote about it in Feb 2008, and expressed his concerns about it.
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