Saga may be sail­ing into calmer wa­ters af­ter a ter­ri­ble year, so the shares are a hold

The com­pany is start­ing to prove that it is more than an em­bat­tled in­sur­ance busi­ness, while fall­ing debt is fur­ther good news, says Russ Mould

The Daily Telegraph - Business - - Business -

FACED by the shares’ shock­ing per­for­mance since last April, this col­umn is still kick­ing it­self for not pay­ing more at­ten­tion to the com­pet­i­tive threats that face Saga’s in­sur­ance busi­ness.

But last week’s full-year re­sults at least of­fered some re­as­sur­ance on the group’s fi­nan­cial per­for­mance and strat­egy, so pa­tient in­vestors may be will­ing to stick with the FTSE 250 firm, es­pe­cially as debt is fall­ing and the yield looks plump.

Last year’s re­sults were not pretty, scarred as they were by costs as­so­ci­ated with help­ing cus­tomers who had been stranded by the col­lapse of the Monarch air­line, and the chal­lenge posed by price com­par­i­son web­sites to the in­sur­ance broking busi­ness. In ad­di­tion, the com­pany con­tin­ues to in­vest in IT and two new cruise ships,

costs that are bur­den­ing near-term prof­its and cash flow, to the ex­tent that the chief ex­ec­u­tive, Lance Batch­e­lor, still ex­pects earn­ings to fall by 5pc this year af­ter last year’s dis­ap­point­ing flat per­for­mance.

The good news is that this fore­cast is no worse than De­cem­ber’s warn­ing. Bet­ter still, strong travel book­ings sug­gest that the com­pany is start­ing to prove the mer­its of its strat­egy, and that it is in­deed much more than an in­sur­ance busi­ness with a few an­cil­lary strands tacked on to the end. Best of all, healthy cash flow en­abled the man­age­ment to sanc­tion a 6pc rise in the div­i­dend to 9p. This looks af­ford­able, as­sum­ing no ma­te­rial change in trad­ing. There could still be twists in the tale but re­as­sur­ance on the div­i­dend and the 7.2pc prospec­tive yield should help to sup­port the shares.

Questor says: hold

Ticker: SAGA

Share price at close: 125.2p

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