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Saga Group in "steady as she goes" update

Last updated: 14:35 21 Jun 2018 BST, First published: 07:35 21 Jun 2018 BST

Cruise ship
UBS said after the trading update that “no bad news is good news”

Saga PLC (LON:SAGA), the leisure and insurance products provider focused on the over fifties, has traded in line with expectations this year.

Sales of Saga-branded retail insurance policies increased by roughly 1% year-on-year, supported by 30% and 14% growth in motor and home new business policies, respectively.

READ: Saga shares bounce back as full-year profit sees small rise, says travel business has “excellent” visibility

Total retail insurance policies for the first four months of the year were little changed year-on-year as a result of the group’s decision to close the Direct Choice brand in 2017.

Saga said the motor and home insurance markets remain competitive but the group continues to write new business on attractive terms with its direct marketing channels representing the majority of its new business volumes.

The underwriting division continues to perform well, Saga said, with motor claims costs in line with expectations despite the snow and icy weather conditions during the period when Britain was hit by the “Beast from the East”.

Things were a bit mixed on the holiday bookings front, with tour bookings for 2019/20 little changed from a year earlier although there has been positive momentum recently.

Bookings for Saga’s new cruise ship, Spirit of Discovery, have exceeded 55% of the group’s sales target for the first nine months from June 2019, at attractive yields.

Saga’s new membership scheme, Possibilities, now has 740,000 members, the group revealed.

"We have seen good momentum this year across our travel and insurance businesses, particularly in new motor and home insurance policies, underwriting performance and bookings for our new cruise ship, Spirit of Discovery. All of this underpins our confidence that we have put in place the right investment to drive the Saga business forward," said Lance Batchelor, the chief executive officer of Saga.

Broker reaction is positive

“One of Saga’s strengths is its loyal customer base. Many have multiple products with the company and some even consider themselves to be part of a community – a situation many consumer-facing companies would love to be in,” observed Russ Mould, the investment director at AJ Bell.

“80% of Saga’s group profit is generated by one-fifth of its customer base. It has spent a long time understanding how this segment came to become so loyal, so that it can a) try and sell more relevant products to them and b) see which other customers have similar characteristics.

“The Possibilities scheme is part of this broader drive to have greater engagement with its customers, which seems a very sensible strategy,” Mould opined.

“Many companies fail to appreciate that if they show more interest in their customers and listen to what they want, there could be a greater chance of them staying customers for longer. It’s good to see Saga going beyond the basics of doing business,” Mould said.

UBS said after the trading update that “no bad news is good news”.

“In our view, Saga’s update … confirms supportive trends highlighted at the full-year – we view this as encouraging given the inexpensive valuation,” the Swiss bank said, as it reiterated its ‘neutral’ recommendation.

Based on UBS’s earnings forecasts for the current financial year (to the end of January 2019), Saga trades on an earnings multiple of around 10, compared to multiples of 11-16 for other companies that specialise in motor insurance.

“Saga offers double-digit EPS growth (higher than peers), assuming Saga can fill its new ships and broking earnings do not grow sideways,” it said.

Sage's shares were down 1.6% at 633.8p.

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