- Profit guidance downgraded to £20 million-to-£30 million range
- Saga warns insurance market inflationary pressures set to continue
- Expects ‘continued recovery’ in cruise and travel businesses
Shares in Saga (SAGA) slumped 18.5% to 109.4p, an all-time low since its flotation in 2014, after the over-50s insurer and cruise operator warned full year profits will fall short of expectations amid inflationary pressures in the insurance market.
The latest earnings alert from pandemic casualty Saga overshadowed a swing from losses of £2.8 million to underlying pre-tax profits of £14 million for the first half to July, as the Folkestone-headquartered company resumed more normal cruise and travel operations.
SIGNIFICANT DOWNGRADE
Saga now expects to report annual underlying pre-tax profits in the £20 million to £30 million range, a material downgrade from previous guidance of £35 million to £50 million, based on the ‘current inflationary pressures within the insurance market which are anticipated to continue’.
The good news is that gazing ahead to the second half, Saga does expect a continued recovery in its cruise and travel businesses.
‘We anticipate that the headwinds experienced in the first six months will recede as customer demand continues to rebuild and we are able to grow our bookings,’ said the company.
‘Whilst we are mindful of the broader inflationary environment in the UK, the exposure within these businesses has been largely offset or, in the case of fuel, hedged, and at present, we are not seeing any impact to demand from our customers.’
STRONGER POST-PANDEMIC
CEO Euan Sutherland commented: ‘Following the launch of our multi-year three-step growth plan and the strengthening of our leadership team, we are focused on delivery of step one, maximising our existing businesses, step two, reducing our debt and step three, creating THE Superbrand for older people in the UK.’
And while mindful that the ‘external environment’ remains challenging, Sutherland expressed confidence that Saga ‘is now in a stronger position than it was before the pandemic. We are determined to build Saga into the largest and fastest-growing commercial network for older people in the UK, building a customer lifetime value model and creating long-term value for our investors.’
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said the modern definition of the word ‘saga’ is ‘a complicated series of events that bores people to tears, and there couldn’t be a better name for the provider of insurance and cruises to old people.
‘Saga has become a right mess over the years and has turned a once-trusted brand into something many people now primarily associate with profit warnings.
‘True to form, along comes another warning that it won’t hit previous guidance for earnings. Inflationary pressures in the insurance market are still creating problems, causing it to significantly lower its earnings expectations.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Tom Sieber) own shares in AJ Bell.
