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Saga - Insurance and travel both steady

Nicholas Hyett | 21 June 2018 | A A A
Saga - Insurance and travel both steady

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A brief trading statement released alongside the annual general meeting saw Saga report healthy sales in both the travel and insurance businesses. However the insurance market is said to remain competitive.

The shares were broadly flat in early trading.

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Our view

Saga's an unusual animal - what other company would combine cruise ships and motor insurance?

Uniting the eclectic product offering is a focus on the over 50s. Many in that age bracket are asset rich with comfortable pensions, and an ageing population means the category is growing.

Historically Saga's brand awareness among that demographic has been high. That's allowed it to cross-sell its wide variety of services. However, recent trends have not been so positive.

Although the average number of Saga products per customer has continued to rise, the customer numbers have been static. Our concern is that the current generation of 50-somethings don't feel the same attachment to Saga as previous cohorts.

Flagging customer numbers has led the group to budget an extra £10m a year for marketing, it clearly feels its position is under threat. Initiatives include a recently launched membership scheme, and a focus on High Affinity Customers who hold multiple products - although both of these really target increased cross-selling rather than new customer acquisition.

At present cross-selling opportunities are driven by two significant divisions - Insurance and Travel. Travel (cruise ships and tour operating) may be the more high profile, but Insurance, particularly Motor, is the money spinner.

Recent initiatives have shifted underwriting risk onto third party insurers and increased broking fees. This has freed up capital and improved earnings quality in the insurance business - a trend Saga hopes will continue.

In the long run, Saga is looking to expand its range of services to include investment services and financial advice, with home care and retirement villages also in the pipeline. If the group can get customer numbers moving back in the right direction then the Saga of tomorrow could look markedly different from the insurance-focused business of today.

Until then the insurance business is providing the cash flows behind the dividend. Analysts are forecasting a prospective yield of 7.2% next year.

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AGM Statement

Sales of Saga branded insurance policies rose 1% year-on-year, with growth in both motor and home new business policies. The closure of the Direct Choice brand means total retail policies are flat.

Saga's underwriter has performed well. That's despite icy conditions earlier in the year - benefiting from the ability of its key customer group to defer journeys.

Tour bookings are flat year-on-year, while the new Cruise ship Spirit of Discovery is 55% booked for its first 9 months.

The Possibilities membership scheme now has 740,000 members.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.