According to Peel Hunt, the Insurance division remains a sticking point for Saga PLC (LSE:SAGA), which provides travel and financial services for the over 50s.
Despite positive momentum in the travel sector detected in an upbeat trading statement, insurance sales have dropped by 6% year-on-year, continuing the strain on the company's overall performance. The broker also highlighted ongoing margin pressure within this division.
Central to Saga's future success is its plan to sell its insurance underwriter, AICL, as it seeks to alleviate some of the challenges within the Insurance division. This decision comes ahead of a bond redemption due next year.
However, it's not all gloom for the British company. The cash balance on Saga's books currently stands at £150m, slightly ahead of Peel Hunt's estimates for the first half of the year, which were pencilled in at £133m.
Despite the strain from the insurance arm, Saga's shares are viewed as fairly valued by Peel. The stock is trading at a price-to-earnings (P/E) ratio of 5x on 2023/24 estimated adjusted earnings per share, and 0.4x Net Asset Value (NAV).
In light of these factors, Peel Hunt maintains a 'hold' recommendation on Saga, citing that the benefits from the improving travel business are being counterbalanced by the persistent challenges in the insurance division.
At 2pm, the shares were broadly unchanged at 130.77p.