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Markets Now – Thursday 13th August 2020

Well this is all a bit embarrassing.

The upper chart shows shares in Dignity, the funeral director, rising 60 per cent in the 11 sessions before today’s. The lower chart shows two volume spikes over the period: more than five times the daily average changed hands on July 29, then the company delivered interim results, and nearly ten times the daily average changed hands on August 11, when the company didn’t. The shares rose 21.5 per cent that day in reaction to Dignity, to reiterate, saying nothing whatsoever.

This is all a bit embarrassing, specifically, for The Competition and Markets Authority. The CMA today published the provisional decision report on its more than two-year long investigation into the funerals sector. The headlines look very positive indeed for Dignity, with no recommendation of price controls, so the shares are up by a further 37 per cent at pixel. Those with a reason to buy the stock on Tuesday morning can now bank a gain of ~70 per cent.

Life’s been a bit problematic at the CMA of late. Chairman Andrew Tyrie quit abruptly in June after just two years in the job, apparently after a board-level scrap over his plans to give the watchdog some actual bite. Less than a week later the CMA performed an unforced U-turn hankered after by lobbyists and said it was okay for Amazon invest in Deliveroo, having previously considered it a poison pill deal. Then in August, having found JD Sports and its controlling shareholder Pentland in breach of an enforcement order related to their Footasylum takeover, the CMA delivered a piddling £300,000 fine with a ruling whose internal logic was so flawed it could’ve been written by M Night Shyamalan.

Given all that, the last thing the CMA’s wallflower CEO Andrea Coscelli needs right now is an FCA investigation into why the agency’s findings seem to leak into the market before publication. It’s pretty clear, however, that an investigation is merited. It’d help restore confidence that at least one watchdog can still do its job.

Peel Hunt, upgrading Dignity from “sell” to “hold”, has a handy summary of the decision:

The CMA has found that it would not be possible to impose price controls given the current circumstances. It has, however, found that price controls are required, and so is proposing returning to the option of a price control remedy when the funerals industry has recovered to a steady state, which may well be different from that existing before the onset of Covid-19. This is likely to require a supplementary market investigation focused on resolving the pricing issues identified.

In the meantime the CMA is proposing a ‘Sunlight’ regime, which would impose a level of oversight on the industry and companies’ behaviour. Information on prices would need to be more visible, an inspection regime would be implemented and certain companies would need to provide financial information to the CMA.

Consumers are more likely to compare prices going forward, but this should be a relief for the industry given that there will not be a price control regime for some time. However, the CMA clearly intends to return to this, particularly as it found that “the Co-op and Dignity, which account for 30% of branches, are often significantly more expensive (we estimate by approximately £800 and £1,400 respectively) than many of the small typically family-owned businesses that operate the majority of branches in the UK.”

• Updates might follow, influenced or otherwise by requests and complaints in the comment box.


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