Shares in funerals group Dignity have surged during the stock-market rout amid expectations that it will book big profits from coronavirus.
As the rest of the stock market dived 12% last week, with selling across the board, Dignity shares rose 6% as investors bet on a rise in the death rate.
Bloomberg filings indicate investment fund Granular Capital spent £8.3 million on a 3% stake in the firm on February 21, the day reports first suggested the virus had spread to Italy. It will have made a paper profit of £600,000. Dignity is the only stock market-quoted funerals firm and has proved to be one of the few stocks for investors to buy to protect their wealth from the worst ramifications of the virus’s impact on company earnings.
Charles Hall, an analyst at Peel Hunt, said: “This is entirely due to coronavirus. But if you look at the data on the virus, it seems unwarranted. Around 600,000 people die a year and the evidence shows that, even among people who are affected, the deaths from the virus are tiny compared with that.”
He added that proposed caps on funeral charges by the Competition and Markets Authority also made Dignity shares a bad bet.
A few days before Granular was buying Dignity shares, BlackRock increased its short position bet that the share price would fall.
