ii view: Saga flags good start to the year

AGM trading update from 1 February to 24 June

Chief executive Mike Hazell said:

"Saga has made a good start to the new financial year. Our Ocean Cruise business has traded exceptionally well and, in Insurance, we have continued to take actions within a market which remains challenging. 

“Looking ahead, we are focused on driving sustainable business growth in a capital-light way, while growing our customer base and deepening our connections with those customers."

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ii round-up:

Over 50’s product and services provider Saga (LSE:SAGA) today detailed trading for the first four months of the financial year which matched management’s existing expectations.  

An exceptional start to the year for its ocean and river boat cruises along with demand for travel bookings continued to counter challenging conditions for its insurance business, leaving it on track to meet current full-year forecasts.

Shares in the small-cap company initially rose 1% and then fell by 1% in UK trading having come into this latest news down around 7% over the last year. That compares to a 3% gain for ocean cruise operator Carnival (LSE:CCL) and a 22% improvement for insurance provider Admiral Group (LSE:ADM) over that time. The FTSE All share index is up 11%. 

Along with cruises and other holidays, the insurance division sells policies covering travel, medical, motor and home requirements, with Saga also operating a small Money division providing personal finance products such as savings accounts.   

Load factors, or the percentage of available seating capacity filled by passengers, for ocean and river cruises stood at 83% and 78% respectively. That’s up from 79% and 74% this time last year. 

For insurance, actions to stabilise the broking business had seen early signs of improvement for motoring, although continued inflation challenges for home policies meant that group actions here had proved more muted. 

Saga continues to explore partnership opportunities within Ocean Cruise and Insurance that would support growth ambitions, crystallise value and enhance long-term returns for shareholders.

First-half results are scheduled for 2 October.

ii view:

Founded in 1951, Saga today employs over 3,500 people. Cruises and travel related services generated its biggest chunk of sales over its last financial year at 55%, followed by insurance at 41% and other services such as personal finance products like equity release the balance of 4%. 

For investors, challenges for insurance persist, with management flagging the expected impact on profit over the year ahead given required investment in insurance policy pricing. Group net debt of £637 million as of its year-end to late January compares to a stock market value of under £165 million. No current dividend payment contrasts with a forecast dividend yield of over 5% at Admiral, while the many factors outside of management’s control such as fuel prices and the weather, can hinder travel performance.   

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On the upside, the recovery in travel demand seen since the pandemic continues, with load factors further improving year-over-year. A focus on reducing net debt is ongoing. Increasing profits for the insurance business are expected to resume following its repositioning, while a strategy to utilise partnerships going forward is now being pursued.  

For now, and despite a recovery in travel demand, more cautious investors are likely to await further debt reduction and a return to headline group profitability.

Positives: 

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

Negatives:

• Uncertain economic outlook
• Many factors outside of management control 

The average rating of stock market analysts:

Buy