ii view: Saga travel bookings largely deferred

Insurance is resilient, but the travel ops remain suspended and the shares are down over 60% in 2020. 

Trading update – from 1 Feb to 21 June 2020 

• Insurance policies sold down 5% to 620,000
• 70% of cruise guests have moved their booking to later sailings
• Cash of £30 million held on 31 May 2020
• Cost savings of £15 million

ii round-up:

Insurance and travel company Saga (LSE:SAGA) expects to remain within banking terms or covenants, even if its travel operations do not resume until next year under the Covid-19 pandemic. 

More than 70% of cruise guests have moved their booking to later sailings. 

Saga shares gained by more than 4% in early UK trading, but fell back later in the day and are down over 60% year-to-date. Rival travel companies such as Carnival Cruises (LSE:CCL) and British Airways owner IAG (LSE:IAG) have seen their share prices fall by a similar amount. 

As at the end of May, £44 million of advanced travel payments had been refunded to customers. All travel departures up to and including August had to date been cancelled. Management continues to expect some travel to resume later this year.  

A downturn in travel related cover also resulted in a 5% decline in overall insurance policies sold to 620,000. Motor and home insurance policies sold for the period rose by 1% to 567,000. 

Former Superdry CEO Euan Sutherland, who took the helm back in January, noted that “Our Insurance business has been resilient and continues to make progress.”

Like fixed-rate mortgages, Saga retains a concentration on selling policies offering a three-year fixed price or premium.  

The Folkstone headquartered group continues to innovate its insurance products. Treatment abroad for Covid-19 and repatriation to the UK has been included as standard as part of its travel insurance policies for all trips from 1 June.

ii view:

Saga is a specialist provider of products and services for people aged 50 and over. The company first and foremost operates an insurance business selling a range of products including motor, home and travel cover. Second to insurance in profit terms, although previously its biggest revenue generator, it also offers a range of holidays, including cruises. Last year, it launched its first-ever purpose-built cruise ship, Spirit of Discovery. A second ship, the Spirit of Adventure, is expected to be delivered by the end of October. Its Emerging business division offers personal finance products such as savings accounts.   

For investors, initiatives at both its insurance and travel businesses and cost savings of £15 million offer hope. But Covid-19 has further increased the pressure on a company which was struggling beforehand. Saga shares are down 91% over the last five years. Both the insurance and travel industries remain highly competitive. Travel is regularly subject to factors outside of management’s control, such as the weather. For now, and with the dividend payment previously suspended, investors are in no rush to climb aboard with so much uncertainty around the pandemic.

Positives: 

• Its targeted demographic – 50 and over – is growing
• Cost saving programme

Negatives:

• Travel business suspended under Covid-19 pandemic
• Dividend payments halted

The average rating of stock market analysts:

Strong hold