Dignity and Abbey
Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

“The FTSE 100 looks set to end the week on the front foot. The index enjoying strong gains on Friday morning despite the threat of a trade war between the US and several of its trading partners after a breakthrough overnight on the political deadlock in Italy,” says AJ Bell investment director Russ Mould.

Dignity

“Just as funerals provider Dignity was looking back on track after a big hit earlier this year from the launch of a new pricing structure, potential regulatory action has emerged as a new threat to the business.

“Historically the business enjoyed very strong margins, but its recent experience demonstrates two of the key obstacles to maintaining these levels of profitability over time.

“The first is competition. Dignity lowered the pricing points on its funerals to levels that were in line with its main competitor the Co-Op in January. This led analysts to cut their earnings forecasts in half.

“The other is regulation. The Competition and Markets Authority has today announced a probe into the £2bn funerals market with the Treasury also issuing a call for evidence on the pre-paid funerals space.

“Dignity is an active participant in the latter. There are 1.3m undrawn plans in the UK and as at the end of 2017, the company had 450,000 outstanding plans in place.”

Abbey

“Small cap housebuilder Abbey is on the back foot today. Despite reporting it had built more homes in the year to 30 April, the company says profit will be lower as margins take a hit.

“The company is the latest in the sector to warn of margin pressure amid signs levels of profitability in the sector may be close to peaking. In May Crest Nicholson warned its margin would be at the lower end of full year guidance.

“Housebuilders are facing pressure on two fronts. First, build costs are ticking up and, on the other side of the equation, house prices are flattening out. As a result, investors are likely to keep a close eye on margins in future updates from the sector.”

These articles are for information purposes only and are not a personal recommendation or advice.

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The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.