Saga Share Discussion Threads

[123trev] 14/12/2017 14:43

Does it generate the cash to support it! An epic tug of war going on here today.

[masurenguy] 14/12/2017 12:20

I think that the level of debt is an issue here especially with prospective interest rate rises in the pipeline. On my watchlist but no position here so far.

[123trev] 14/12/2017 09:32

It really does make you wonder about investing when you see a share like this getting hammered down so badly not saying it’s not got its problems but compared to a lot of stocks out there it ain’t that bad at the minute and I would be very nervous now about holding any stock in the main indexes because there operating no different to the aim market without the risk/reward is a massive correction looming I ask myself!

[ignoble] 14/12/2017 09:08

And your customers!

[stewart64] 14/12/2017 08:39

If a 2 million pound Monarch loss and a statement that the insurance market is tricky can crash a former 2 billion market cap share then the CEO communication skills are s$$t.

[stewart64] 14/12/2017 08:24

Well it's on a yield of 7% now 8.8/125. I reckon it must be short action because Hargreaves is coming in with a buy/sell ratio of 95/5 each day. Retail investors getting caned.

The odd thing is that yield doesn't appear to be in danger. But any stock that has had a flash crash will come under attack.

[f1araway] 13/12/2017 17:03

WHOOPY-DO up a halfpenny!

[essentialinvestor] 13/12/2017 16:25

Spob's summary is a good one imv.

[justiceforthemany] 13/12/2017 12:48

Another Director Buy.

[justiceforthemany] 13/12/2017 10:43

Saga SAGA JP Morgan Cazenove Neutral 130.40 126.50 190.00 190.00 Retains

[justiceforthemany] 13/12/2017 10:39

Buys flooding in today. Bullish chart. Was way oversold.

[yump] 13/12/2017 09:20

Well it remains to be seen whether the £10mln spend on customer acquisition, is actually that, or a lot of it is actually for customer retention.

One thing is certain, until they sorted out their "greater customer insight and a stronger business platform", it would have been business madness to try to increase the number of customers, or to encourage lost customers to come back. That would be like opening the doors on your new showroom while the painters were still in.

[mj19] 13/12/2017 08:26

Stockwatch: Should fresh money move into Saga?Growth/recoveryIncomeLong-term growthOver-priced?The big pictureBy Edmond Jackson | Fri, 8th December 2017 - 09:51Share thisStockwatch: Should fresh money move into Saga? Is the plunge in mid-cap share Saga (SAGA) overdone or a moment of truth how its 2014 flotation claims were hype? Does the chief executive's buying £99,500 worth at 138.2p reflect value or an attempt to shore up confidence?Down initially 25% from 180p, at 140p the stock presently trades on a forward price/earnings (PE) multiple of about 10.5 times, with a 7% yield covered 1.5 times by earnings, although cash flow cover may be tighter. It's a prime example to be wary of ex-private equity-owned businesses floated with high hopes, but which may be in strategic deadlock.In June 2014, I described Saga as "an over-glorified insurance business in a highly competitive market; (at 185p) anyone who applied in the hope of a quick turn had best sell."The £550 million raised was mainly to pay down debt that private equity operators had used to maximise their return on capital. The balance sheet also remains £1.5 billion goodwill-loaded from acquisitions.'Affluent older folk' database concept dashedThe flotation pitch aimed for a valuation based on an "affinity marketing" opportunity harnessing its customer database aged over 50, this segment of the population being relatively wealthy if they own property and have a decent pension. A tension has always existed whether to value Saga thus, or as an insurer in highly competitive markets, hence its volatile-sideways chart in a 185p to 225p range until recently.The market has given Saga the benefit of doubt: an historic annual average PE multiple of 14 or higher compares with. Direct Line (DLG) that rose from about 8 times to the low teens, helped by cost-cutting. In fairness to Saga, its track record shows operating margins rising from 12% to 24.1% if providing scope for competition to strike.Saga's PR has also been adept in terms of coverage on this profit warning: blamed largely (by photos and headlines) on Monarch Airlines' administration creating a £2 million cost when Saga had to pursue alternative carriers for its travel side. This takes attention off £10 million to be spent on "customer acquisition" and tough trading in insurance, that represented 89% of group profit in its last financial year.Besides a sense this shouldn't be necessary if the database is already an asset, the upshot for value is impossible to guess without knowing what aspect of customer attrition may be involved. Maybe, like me, you get regular mail from insurers trying to poach car and home policies with offers not only to match the best terms but offer say £50 as well. Might Saga "invest" £10 million to trump with £100 offers?If something like this, which compromises margin, is involved, it is more like defensive aggression than investing for growth. Only time will tell.Narrative has changed since September interimsFigures to end-July showed a 5.5% rise in underlying pre-tax profit to £110 million, but which disregarded losses on derivatives and debt write-off costs, otherwise profit fell 6.3%. Chief executive Lance Batchelor was upbeat about the group's trajectory: "I believe these results continue to demonstrate that Saga is growing, has good momentum, and is on track to deliver expectations for the full year" (that anticipated about 2% profits growth this year and over 7% next).Just over two months later, however, guidance has changed to flat pre-tax profit of about £190 million, a 3% downgrade to consensus, then about £180 million next year, which is a more serious 17% downgrade. It reflects insurance becoming more competitive, claims increasing, plus some accounting subtleties.Saga's shift from insurance underwriting to broking has lost a £20 million revenue recognition benefit due to timing, down to £10 million this year and nothing thereafter. Co-incidentally, lower levels of underwriting (from competition) are reducing reserves able to be released to smooth profits - by £10-15 million from the next financial year.This has come as a surprise and, though it can seem "accounting" than "underlying" related, it all adds up. Easy to feel management should have known about this in September and communicated it.Aside from the Monarch collapse, the travel side is said to be "strongly ahead" of last year, but looking at last year's breakdown, while travel represented 51% of group revenue it was only 11% of profit. Insurance still predominates: underwriting was 31% of group profit, home insurance 26%, motor insurance 19% and other insurance 13%.Experienced investors know the adage how profit warnings are liable to come in threes, and, given the caution in this update relates to insurance, it's an amber light for investing currently.How secure is the dividend?I've flagged plenty of times the risk around companies where a growth rationale gets hit, then the stock has to de-rate to a yield sufficient to tempt income investors -considering risks both to capital and the dividend.More positively, if growth can resume then the stock will rise as a lower yield is perceived necessary on a revaluation of risk. Hence the dynamics surrounding Saga have got more interesting to watch.The update asserts a current year dividend in line with expectations "and we remain fully committed to our stated dividend policy" which has included the word "progressive". Thus, brokers have kept their forecasts. So, is the market justified to price for a 7% yield, which implies relatively high risk?The table suggests earnings cover of 1.5, reducing to 1.3 times, though the cash flow profile is more crucial. The interims showed a 5.6% like-for-like rise in net cash from operations to £96.8 million, with financial asset disposals responsible for £27.9 million cash from "investing" inflows; within which profile the dividend payment was £65.1 million.This means profits really need to grow for there to be progressive payouts, longer-term. Meanwhile, in the short to medium term, Saga is buttressed with £144 million cash. The crux is whether taking out £10 million costs combined with better "customer acquisition" can deliver progress given the current state of the insurance industry.Frankly, I agree, a 7% yield given this situation and management track record, is fair pricing.Saga - financial summary year ended 31 Jan Consensus estimates 2013 2014 2015 2016 2017 2018 2019Turnover (£ million) 1,310 944 900 963 871 IFRS3 pre-tax profit (£m) 150 171 114 176 193 Normalised pre-tax profit (£m) 172 179 138 185 195 190 180.0Operating margin (%) 12.0 17.6 17.6 20.5 24.1 IFRS3 earnings/share (p) 10.2 11.4 8.5 13.2 14.0 Normalised earnings/share (p) 12.2 12.1 10.8 13.9 14.2 13.9 13.2Earnings per share growth (%) 17.0 -0.6 -10.8 28.1 2.0 -2.1 -5.0Price/earnings multiple (x) 9.9 10.1 10.6Historic annual average P/E (x) 14.2 17.8 14.9 14.0 Cash flow/share (p) 21.1 15.7 15.4 13.5 12.4 Capex/share (p) 2.6 3.0 3.9 Dividend per share (p) 4.1 7.2 8.5 9.4 10.3Dividend yield (%) 6.1 6.7 7.4Covered by earnings (x) 2.6 1.9 1.7 1.5 1.3Net tangible assets per share (p) -47.0 -40.2 -30.7 Source: Company REFS Will the chief executive last?CEO Batchelor looks exposed if 2018 proceeds to a second profits warning. He is secure currently due to Saga's lack of a strong independent chairman to judge strategy and actions: the incumbent has signalled intention to retire next year after 14 years as chairman and 26 years with the company.So, unless Artemis Investment Management (holding 10%) convenes with any other dissatisfied holders to install a firm new chairman, the status quo will persist. By their track record to date I'm not convinced this management can deliver what the Saga concept was set out to be; yet there's a scenario where a new chairman implements a fresh review and either installs new top management or breaks it up to exact value on a sum-of-parts basis. For what it's worth, Goldman Sachs (which floated Saga) has entertained 230p per share.For a hedge fund with a £1 billion war chest for pro-active investing, Saga could be a lucrative target. Smaller investors, meanwhile, have to play according to industry/company events, now flagging caution.Continue to hold Saga if you already own them and appreciate the risks, but fresh money should wait to see how next year's numbers evolve, and the appointment of a new chairman. Avoid.This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

[diku] 13/12/2017 08:02

Think the CEO should stop pretending all is well just to keep lifestyle going in the form of a salary....facilitate a takeover by a consortium of 2 companies...leisure/Insurance...

[spob] 13/12/2017 07:11

This is mostly an insurance company which is why it never deserved the valuation put on it after the ipo and which is why i never got involved personally.


couple of other points


A key valuation metric for insurance companies is price to tangible book value - for this company that is a negative number - there is zero tangible asset backing


Also this company has around 4 to 5 hundred million pounds of net debt - this means the pe ratio is misleading, this company is not as cheap as it appears to those that "know everything about investing"


The over 50's segment may be growing but the percentage of those who are internet savvy and using comparison sites is probably growing at a faster rate.


The good old days when most of them stuck with the same car insurance company year in and year out are probably long gone. The greed of insurance companies is to blame for that.


I suppose there is always the possibility that a greater fool will come along and put in an offer for the company

[dr biotech] 12/12/2017 22:41

From proactive investors

Goldman’s analysts said they believe the fall in Saga’s profit guidance is “primarily the result of structural rather than cyclical factors”, and therefore they expect the firm to “face ongoing challenges”

Saga’s shares plunged by over 20% in value last Wednesday after the FTSE 250 listed firm's profit warning
Goldman Sachs has downgraded its rating for Saga Group PLC (LON:SAGA) to ‘neutral’; from ‘buy’ following the over-50’s travel and insurance group’s recent profit warning.

In a note to clients, Goldman’s analysts said they believe the fall in Saga’s profit guidance is “primarily the result of structural rather than cyclical factors”, and therefore they expect the firm to “face ongoing challenges”.


They said the structural issues facing Saga include competition, for instance in home broking where the growth aspirations of new players, such as Admiral PLC (LON:ADM) and Hastings Group Holdings PLC (LON:HSTG), look likely to remain an ongoing feature of the market.

The analysts also highlighted Saga’s price sensitivity, noting that its brand strength “does not appear sufficient to insulate it from competitive pressures in the broking channel, where it is having to cut prices/margins to retain customers”.

Saga’s shares plunged by over 20% in value last Wednesday after the FTSE 250 listed firm said it now expects its full year growth in underlying profit before tax to be in the region of 1-2%, compared to the 5.5% achieved at the half year.

The group said the profit fall reflects more challenging trading in its insurance broking business and the impact of the collapse of Monarch Airlines on its tour operating arm.

In mid-morning trading today, Saga shares held steady at 129.4p.

[diku] 12/12/2017 22:17

If it breaks 120p then good possibility 100p is coming...as they always do...hope for the best 120p holds...

[dr biotech] 12/12/2017 18:34

Not foreseeing the effect Monarch was going to cause was a major error. I think the Chairman is about to retire, so lets hope they pick someone strong that can put us in the right direction and if not, will find a CEO that can.

I think that travel companies can garner loyalty. I've certainly had a few good holidays where I have subsequently rebooked with the same agent. There is a lot of customer interaction there. Insurance for me is just price. I rebooked my car insurance today through a comparison site, I never have any interaction with the company unless I make a claim, and fortunately I haven't had to for 20 years. Pay the money, and the best they can do is send me monthly emails that I delete without reading.

Other points are also valid - I just feel that the correction has been overdone and now this flawed company is decent value. Although what does Buffet say? A great company at a fair price is better than a fair company at a great price. This falls into the latter.

Perhaps it has break up value - buy the tour business and flog the insurance side or vice versa.

[bend1pa] 12/12/2017 18:34

We've had a forecast by SAGA itself that eps is expected to fall in 2019 and possibly this year too. Ie things are probably a lot worse than the company is letting on. The Chairman has decided to take an early bath, we have the statement "we intend to increase our annual customer acquisition spend by £10 million starting next year", suggesting the over 50s customer base is slipping away, and unless SAGA stop treating these people as their 'loyal customers', ie as naive, then they are shooting themselves in the foot. No-one these days is loyal to a travel or insurance company if they can get better deals elsewhere.

I expect the real skeletons in the cupboard will emerge fully either next year or by 2019, and that Lance Batchelor will be walking off into the sunset clutching his golden handshake. The sooner he goes, the better.

[ignoble] 12/12/2017 18:23

From my point of view , when Saga first started they were good for motor and home insurance. I was insured with them on both counts for a few years.
Price comparison websites came along and my generation were aware how to use them.
Saga were not competing and I moved on
Shame because their customer service is excellent.

[jimmywilson612] 12/12/2017 18:02

I'm not short - and I'm tempted to take an opening position here - but I'll throw out some negatives I have sitting on the fence.

- Weak Management - Chariman standing down - could have raised Monarch demise during that statement. Feel like their problems are coming from internally mainly than external. Monarch's demise was expected - why has it caught them out? Where was the contingency plan? The last trading statement (very bullish) came just before Monarch's demise but the writing was on the wall at that stage.

- Brand is not good enough - no loyalty - having to increase spending to attract customers suggest this. In insurance, this leads to 'race to the bottom' where price is the only USP - not a good business model.

- Lots of moving parts to the business means it's has a costly hierarchy in place - Running a Cruise company to an Insurer.

- Another Profit warning from a firm that has been listed by venture capitalists. Worried more is yet to come?


In conclusion, a lot to like about the company but if the problems are mainly management related - and management hasn't changed - what's to say the performance of this share will change?

[riverman77] 12/12/2017 17:52

Justice - I thought the trading statement said PBT were expected to fall by 5% next year, so profits not still growing? But I agree with your wider point that this is starting to look undervalued. I suspect the plan is to cut insurance prices next year and hope enough clients don't both switching in later years when the prices are hiked.

[stewart64] 12/12/2017 17:08

It's probably more about charts now than fundamentals. Can't really imagine any sellers at this level. My own holding has been whittled away to something insignificant as a percentage of the portfolio, and that must be most shareholders. Guess there might be some pensioners to dislodge where this is their sole holdings.
If there is no short selling then it is confusing as to who the counterparty is to the 95% buy ratio on Hargreaves.