ii view: shares fail to reflect Saga travel improvement

Shares for this insurance and travel company are down 50% since February. We assess prospects. 

Trading update - 1 February to 4 July

• Total insurance policy sales down 2%
• Cruise booking load factor of 73%

Chief executive Euan Sutherland said:

"During the first five months of the year, Saga has made good progress in what has been a particularly challenging external environment and we are pleased that we are on-track to return to an underlying profit for the 2022/23 financial year. 

"While the external environment remains challenging in the near-term, I am confident that our strategy, our people and our product offering will create long-term growth and value for our stakeholders."

ii round-up:

Insurance and travel company Saga (LSE:SAGA) today detailed early year trading in line with analyst estimates as it also announced a series of new management appointments. 

Full-year underlying pre-tax profit is expected to come in at between £35 million and £50 million, up from last year’s loss of £7 million, with five senior management appointments made to reshape its leadership and support its strategy for growth. 

Saga shares fell by more than 2% in UK trading having come into this latest announcement down just over 40% year-to-date, or 50% since February. Shares for much larger cruise operator Carnival (LSE:CCL) have fallen by more than 50% during 2022, insurance provider Direct Line Insurance Group (LSE:DLG) is down around 11% year-to-date, while the FTSE All Share index is down close to 6%. 

• Shares for the future: 25 shares I think are good value right now
• How you can own three great businesses for the price of one
• What other investors are reading right now: 30 June 2022

Saga, a specialist provider of products and services to people aged 50 and over, generates most of its sales via its insurance business, with just under a fifth coming from its travel division.

It flagged a disciplined approach to pricing for its insurance policies such as motor and home, with total policy sales down 2% year-over-year. Moves made to improve customer choice, including the launch of new motor products, are expected to improve sales during the second half of the year.

An emergence from the pandemic had continued for its travel business, with its cruise ship load factor running at 73% as of early July and expected to hit around 75% for the full year. 

New management appointments include Sir Peter Bazalgette, currently Chair of ITV (LSE:ITV), and Jerry Toher, currently chief customer officer at Royal London Insurance and formerly of Homeserve (LSE:HSV) and Royal Bank of Scotland (now NatWest Group (LSE:NWG)). 

First-half results to the end of July are scheduled for 27 September. 

ii view:

Started in 1951 and headquartered in Kent, Saga today primarily operates across the two divisions of insurance and travel. Its insurance products include those for motor, home, travel and private medical cover. Its travel business includes two ocean cruise ships, Spirit of Discovery and Spirit of Adventure, along with a broader holiday business to more than 120 countries and islands. Its small other businesses offer savings products and equity release advice. 

Along with strengthening its management team with appointments announced today, its new strategy includes increasing the frequency of interaction with its customers. That's supported by the launch of a new weekly newsletter that is already reaching 500,000 customers weekly, as well as a customer re-consent, or marketing initiative to update customers on its products and services. 

For investors, an uncertain economic outlook and a cost-of-living crisis for consumers need to be remembered. So do increased geopolitical tensions for travel across parts of Europe following the Ukraine conflict. Insurance rivals are also not standing still, and many including sector giant Admiral Group (LSE:ADM) offer the attraction of a dividend payment, unlike Saga, at the current time. Group net debt also stood at £729 million as of its last year end in January, against a current stock market value of under £250 million. 

On the upside, a recovery from the pandemic for its travel business has been seen. Initiatives, including the expansion of its customer database and the reduction of group debt, are also being pursued, while a series of leadership appointments have been made. On balance, and while a recovery for its travel business is clearly favourable, this remains a difficult period for the business and the shares look to remain of interest only to more optimistic investors right now.  

Positives: 

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

Negatives:

• Uncertain economic outlook
• Dividend payments halted

The average rating of stock market analysts:

Buy