The most important number you need to know about Saga (SAGA) is 11m. That is the size of the over-50's financial services and holiday provider's customer database at the end of July, up from 10.6m a year earlier. But Saga's demographic focus both buffered and encouraged various parts of the business in the reported period, leaving trading cash profits 5 per cent higher at £137m in the core financial services and travel divisions.
Like other companies that offer motor insurance, Saga has suffered from reductions in premiums. This lowered revenue at the halfway stage, but the good news is that premiums started to rise in the second quarter, with progress continuing in the third. What's more, Saga is not bearing the same pain as its competitors when it comes to claims: its combined operating ratio of claims to income even improved marginally, from 68.1 per cent to 68 per cent. Management put this down to its focus on retired customers, who have not increased their mileage as a result of low petrol prices in the same way as younger cohorts.
The launch of an underwriting panel for its motor insurance business should allow Saga to further reduce costs and increase market share. It already has a panel in place for home insurance, which allowed it to increase its trading cash profits by 16 per cent to £34m despite falling premiums in a benign environment for claims.
In its package holiday business, rising demand for higher-margin long-haul holidays among Saga's target demographic, coupled with its acquisition of luxury travel operator Destinology, helped grow revenue by a quarter to £170m. Saga is also having a new cruise ship built for delivery in 2019, and potentially a second one in 2021. This will allow the company to replace current vessels with larger ones requiring lower fuel and repair costs, and crucially generating more cash.
Analysts at Numis Securities expect pre-tax profit for the year to January 2016 of £190m and EPS of 13.8p, compared with £114m and loss per share of 13.4p in FY 2015.
| SAGA (SAGA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 207.6p | MARKET VALUE: | £2.32bn | |
| TOUCH: | 207.3-208p | 12-MONTH HIGH: | 225p | LOW: 145p |
| DIVIDEND YIELD: | 3.0% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 92p* | NET DEBT: | 52% | |
| Half-year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014** | 440 | 42 | 3.3 | nil |
| 2015 | 478 | 101 | 7.3 | 2.2 |
| % change | +9 | +140 | +121 | - |
Ex-div: 8 Oct Payment: 19 Nov *Includes intangible assets of £1.5bn or 137p a share **Company floated in May 2014 | ||||
