ii view: Saga sails back into profit but shares sink

Just as its travel business begins to emerge from the pandemic, there are further challenges for its insurance division. We assess prospects. 

Full-year results to 31 January

• Revenue up 54% to £581 million
• Underlying profit of £21.5 million, up from a loss of £6.7 million
• Net debt down 2% to £712 million
• No dividend payment

Chief executive Euan Sutherland said:

"Over the past year, through what continued to be a particularly challenging external backdrop, Saga made progress against its strategy while achieving significant revenue growth and returning to underlying profit.

"We also took a number of key steps to reposition the business, consistent with the strategy we set out 12 months ago to create 'The Superbrand' for older people. Our top priorities for the next 12 months are to strengthen our financial position and continue to build Saga into the largest and fastest-growing business for older people in the UK, delivering long-term, sustainable growth for our stakeholders."

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ii round-up:

Insurance and travel company for the over-50s Saga (LSE:SAGA) today reported a return to underlying profit as demand for its ocean and river cruises recovered strongly from the pandemic. 

Profit the year to the end of January, and excluding exceptional items, came in at £21.5 million, up from an adjusted loss of £6.7 million last time, although it was at the lower end of management’s prior forecast range of £20-£30 million. 

Saga shares fell by more than 6% in UK trading having come into this latest announcement up by 9% year-to-date. Travel competitor Carnival (LSE:CCL) has gained by close to a quarter so far in 2023, similar to British Airways owner International Consolidated Airlines Group SA (LSE:IAG). Rival insurance provider Direct Line Insurance Group (LSE:DLG) has fallen by over a third year-to-date. 

Saga’s motor and home insurance policy sales fell 7% year-over-year as, like rivals, it was forced to increase its premiums to cover rising claims inflation and adjust to new regulatory requirements to treat existing customers the same as new ones. 

Longer repair times given supply chain challenges and inflation in the cost of car parts have both proved factors across the industry, pushing up claims inflation. Premiums for existing customers must now be broadly in line with those used to entice new ones. 

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Saga’s average margin per policy fell to £71 from the prior year’s £74, with its direct share of new business falling to 49% against 2021’s 59%. Total policies in force declined 3% year-over-year, with growth in travel insurance helping to counter the fall in home and motor demand. 

Looking forward, management expects demand for both its cruises and travel/holiday booking business to continue to build. Demand for motor and home insurance is forecast to retreat further, but with the average margin coming in at its previously estimated £60 per policy. 

Group net debt fell 2% to £712 million. An overall reported annual loss £254 million was made given the £269 million of insurance related value adjustments taken alongside first-half results, and considering potentially lower divisional future profits. 

ii view:

Saga is a specialist provider of products and services to people aged 50 and over. Revenues over this latest year fell almost evenly between the insurance business and cruises and travel, although an adjusted profit for insurance countered ongoing if smaller losses for cruises and travel. Insurance related activities include broking across the motoring and home arenas as well as a separate underwriting business. Its ocean and river cruise activities are complimented by travel services including tailor-made holidays.  

For investors, a difficult backdrop of both economic and geopolitical uncertainty should not be ignored. Group net debt stands at £712 million compared to a current stock market value of under £200 million, no current dividend payment compares to 4% at insurance rival Admiral Group (LSE:ADM), while many factors outside of management’s control such as fuel prices and the weather can hinder its travel related activities.  

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More favourably, a recovery in demand from the pandemic for its travel business remains evident, while a possible sale of its insurance underwriting business is being pursued, with any proceeds expected to reduce debt. Group costs remain a focus including a rejig of its office portfolio, while its small money related business reported an adjusted profit, helped by customer interest in both equity release and savings products.

For now, and while an ageing UK population should be positive for Saga, an investment in the company remains speculative given its debt position, with investors potentially awaiting further evidence of recovery before taking action. 

Positives: 

• Its targeted demographic – 50 and over – is growing
• Strengthened management team

Negatives:

• Uncertain economic outlook
• Dividend payments remain halted

The average rating of stock market analysts:

Buy