Saga PLC (LON:SAGA) has been upgraded to ‘buy’, thanks to “supportive trends and recovering sentiment”.
The Swiss bank’s upgrade comes with a 150p price target, suggesting some 11% upside to the current price.
It helped Saga shares post a 4.4p or 3.37% gain in Tuesday’s early morning deals changing hands at 134.9p.
Interim results highlight healthy bookings
Last Thursday, Saga released its interim results, highlighting healthy bookings for its new cruise ship, Spirit of Discovery, which makes its maiden voyage next year.
The travel put in a solid performance in the first half of the year, though insurance profits slipped as Saga upped its spending to rebuild market share.
READ: Saga reports healthy bookings for new cruise ship
Broking profits were also hit by pressure on motor premiums as well as the push for market share, but the number of policies is now back to the level of the first half of 2017, said Batchelor.
Underwriting again did well, he added. Underlying profits in the six months to June were £106.8mln (£110.9mln), while the dividend is maintained at 3p.
Shares are ‘overly discounted’
“Saga has underperformed the FTSE by 30% since its December 2017 profit warning, driven by concerns that limited progress in the broking unit made it unlikely Saga could offset reserve release normalisation,” UBS analyst Jonny Urwin said in a note.
The analyst highlighted that trading updates since the downgrade, have shown strong new business growth (for insurance broking and bookings), UK motor pricing outlook has improved, and the new chief executive has been “well received”.
Urwin added: “Whilst some execution risk remains, we find the current valuation overly discounted and see scope for recovering sentiment. In the meantime, investors are paid to wait with a 7% sustainable dividend yield.”