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Saga - full year loss, no guidance given

Saga's full year underlying pre-tax profit more than halved to a £6.7m loss.

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Saga's full year underlying pre-tax profit more than halved to a £6.7m loss. That includes higher marketing costs and increased motor insurance claims as driving returned to more normal levels. However, including the impact of the pandemic on Saga's Travel business, the group reported a pre-tax loss of £23.5m.

Saga is continuing to focus on reducing net debt, completing the restructure of its Tour Operations business, and executing the new Insurance strategy. Therefore, no guidance has been issued. Saga isn't currently allowed to pay a dividend under terms from its creditors.

The shares fell 6% following the announcement.

View the latest Saga share price and how to deal

Our view

Coronavirus was a near existential crisis for Saga's Travel division. And while ships left the ports without interruption in the second half, they weren't completely full, and the division - and therefore the entire group - has ultimately taken a loss for the full year. That's left the group relying on its insurance operations and available cash and credit to keep going.

To ease cash flow pressure Saga's been busy raising money - the most recent being a £250m lump from issuing bonds, with the proceeds being used to refinance debt. That's alleviated concerns about liquidity for now.

Management made a hard-headed appraisal of Saga's failings over the last few years and announced a new five part strategy to turn things around. We've seen some progress on some of those initiatives, with the brand refresh in progress and a restructure of Tour Operations nearly complete. This didn't come cheap, but if management continues to divert funds toward keeping debt under control it shouldn't derail recovery efforts.

Notably a big part of management's initiatives revolve around cost cutting and efficiency. So far things have gone the other way with marketing spend on the rise in addition to the Tour Operations outlay. It's not something we're worried about just yet - these initial costs are to be expected as the group nurses its pandemic-inflicted wounds, but it's something to keep an eye on moving forward.

Personal insurance is a tough market to be in, and increased price transparency and ease of switching has made it more difficult to stand out. We've worried for some time that Saga's brand doesn't resonate with the younger end of its 'over 50s' customer base, and while efforts seem to be bearing fruit, it's too soon to say whether it will be enough to change the perception.

Rule changes coming from the Financial Conduct Authority also have the potential to cause volatility in the future.

The Travel division is currently burning cash, but should return to profitability next year. The loyalty shown by current customers and the group's forward booking position are reasonably encouraging for now.

It's worth noting that Saga's dividend is suspended. That's because its lenders won't allow it to pay dividends until debt comes back down, and even once that level's reached, we suspect Saga will want to continue funnelling funds elsewhere for a while. That's likely the right move, but means shareholders aren't being paid for their patience.

Overall, Saga's in a much better position than it was a few months ago. With a return to profitability now a glimmer on the horizon, investors are starting to see a light at the end of the tunnel. Still, there's a lot of work to be done and that's reflected in a valuation that's well below the long-term average.

Saga key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Full year results

The Retail Broking division, which provides motor, home, private medical and travel insurance, saw gross written premiums fall 3.1% to £563.6m. Underlying pre-tax profit fell 9.8% to £66.6m, partly reflecting higher marketing costs and the sale of Bennetts. The number of Saga branded policies in force rose 2.6%, including an increase in Travel policies.

The Insurance Underwriting division saw net earned premiums fall 11.9% to £161.5m. The group's current year combined operating ratio - the percentage of premiums paid out in claims and costs - rose to 96.3% from 91.4%.

Revenue at the Travel division rose 83.5% to £94.7m, despite the business being suspended from Mid-March to the end of June 2021. Marketing expenses rose almost 40%, contributing to a 1% increase in the underlying loss before tax to £79.3m. The Tour Operations business is still being "significantly impacted" by Covid.

Saga generated free cash flow of £27.6, compared to an outflow of £363.5m last year. Net debt fell 4% to £729.0m.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 23rd March 2022