As a group that has spent the past 60 years targeting the over-50s market, one would think Saga (SAGA) had differentiation sewn up. However, increased competition has forced the travel and insurance specialist to overhaul its product design and marketing strategy. That includes increasing the number of customers it gains directly rather than through price comparison websites and changing its renewal pricing approach. Costs associated with those investments, lower insurance margins and reduced reserve releases have forced management to warn that underlying pre-tax profits for 2020 will be around at least a third lower than last year at between £105m and £120m.
The group took a non-cash impairment charge of £310m after reassessing the carrying value of goodwill associated with its insurance operations, which also resulted in a cut to the final dividend to just 1p a share, from 6p in the prior year. Meanwhile, the future payout ratio has been cut to 50 per cent of earnings, from between 50 and 70 per cent. Even on an underlying basis, pre-tax profits were down 5 per cent to £180m. Chief executive Lance Batchelor said the group had been “overly focused on the short term”, which had resulted in a steady decline in customers, who are able to buy “basic and cheap products very easily online”.
Direct new retail insurance broking business declined to 51 per cent of total volumes last year, from 67 per cent, with the proportion gained via price comparison websites – which carry a lower margin – rising. Management plans to launch a motor and home product that offers a fixed rate for three years – providing there are no claims in that time – for customers that come direct.
Underlying pre-tax profits for the travel business rose 2 per cent to £21m, but management plans a shift in tour operations away from low-value generic products to higher-ticket items such as escorted tours and river cruises. Cross-selling travel products to insurance customers via membership programme ‘Saga Possibilities’ – which has around 1m members – is also a priority.
Analysts at Numis expect adjusted pre-tax profits of £112.5m and EPS of 8.2p a share for the year to January 2020, from losses of £135m and 14.5p last year.
| SAGA (SAGA) | ||||
| ORD PRICE: | 74p | MARKET VALUE: | £830m | |
| TOUCH: | 73.7-74.1p | 12-MONTH HIGH: | 141p | LOW: 64p |
| DIVIDEND YIELD: | 5.4% | PE RATIO: | na | |
| NET ASSET VALUE: | 86p* | NET DEBT: | 41% | |
| Year to 31 Jan | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 901 | 114 | 8.6 | 4.1 |
| 2016 | 963 | 176 | 13.3 | 7.2 |
| 2017 | 871 | 193 | 14.1 | 8.5 |
| 2018 | 860 | 181 | 12.5 | 9 |
| 2019 | 842 | -135 | -14.5 | 4 |
| % change | -2 | - | - | -56 |
| Ex-div: | 16 May | |||
| Payment: | 28 Jun | |||
| *Includes intangible assets of £1.2bn, or 110p a share | ||||
