Join our community of smart investors

Saga should be back in the black

FCA reforms are impacting the insurance business
Saga should be back in the black
  • Tougher regulations hit policy performance
  • Cruise bookings surpass expectations

Saga (SAGA) is on the road to profit this financial year, despite highlighting difficulties with the insurance side of its business in a trading update covering the five months to 4 July. Given that the over-50s specialist’s customer base is the most vulnerable to Covid-19, it is no surprise that the pandemic has been a disaster for the business (the shares have cratered by almost 75 per cent since February 2020). But the company’s fortunes are improving as the travel sector recovers, and its demographic target group has felt comfortable sailing off into the sunset on cruises once again.

An insurance environment with high claims inflation and many customers sitting on fixed-price policies is a challenge, however, and a decline in new business hit sales in the period. Total policy sales were down by 2 per cent, with motor and home policy sales down by almost a tenth and policies in force down 4 per cent since 31 January this year. The impact of the Financial Conduct Authority's  insurance pricing reforms, which mean that renewing customers cannot be quoted more than a new customer would be for an equivalent policy, “was larger than we expected” on Saga’s trading performance, Numis analysts added. On the positive side, policy sales should be boosted in the second half by new products, which include an electric vehicle offer.

With punters now spending on holidays and cruise bookings once again, progress is being made in the company’s travel business. A cruise load factor of 75 per cent is expected for the full year, with an “exceptionally strong” summer performance, while bookings for the 2024 season are “well ahead of expectations”.

The company forecasts an underlying profit before tax of £35mn to £50mn for the full year, which is in line with analyst expectations. While net debt is expected to be slightly higher at the end of July than it was in January, leverage should fall in the second half. Saga’s shares look cheap at six times Numis’ adjusted forward 2023 earnings, but insurance troubles have added further pressures.

Last IC view: Hold, 237p, 23 Mar 2022