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
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
Share price at close: 125.2p