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?