Over 50s travel and insurance company Saga (SAGA) is starting to win back investor trust after unveiling in line full year 2017 results, albeit on rebased profit expectations. But real encouragement is being taken from management confidence that investment will drive the business forward.
Shares in early afternoon trade are up 5.5% at 123.5p, albeit still a far cry from the 180p levels before December's crash.
That slump was partly sparked by the collapse of airline Monarch. This not only upset customer holiday arrangements, it also led to £4m worth of restructuring charges.
TODAY'S FIGURES
Results today (12 April) bear the scars of that muddle. Underlying pre-tax profits barely moved at £190.1m in the year to 31 January 2018. Reported pre-tax actually fell 7.6%.
The company is investing heavily in its travel division where it sees the best growth. Travel saw overall revenue grow 3.9% last year, versus the 7% decline in insurance.
For example, it has a pair of new cruise liners in the pipeline (the Spirit of Adventure expected in June 2019, Spirit of Adventure in August 2020). This could prove a smart move down the line given the rapid growth in cruises, where underlying profits almost doubled to £6.6m. More passengers and cheaper fuel helped.
Also encouraging going forward is tours and holidays booked in advance, giving decent visibility. The company reckons it has already secured to the majority of its 2019 sales targets for this part of the business as customers book ahead.
MORE THAN JUST AN INSURER
AJ Bell’s investment director Russ Mould says ‘since joining the stock market in 2014 the company has been trying to emphasise it is more than just an insurance business with a few ancillary strands tacked on. Today’s results may help underpin that argument’.
‘We’ve been in the cruise market for 20 years,’ says chief executive officer (CEO) Lance Batchelor. The CEO also claims that Saga has the highest level of repeat business in cruises.
FASCINATING YIELD DYNAMICS
Perhaps the most interesting point for potential investors is the dividend, raised roughly 6% last year to 9p per share. Forecasts suggests the same again this year due to investment that will nudge profits about 5% lower this year.
Yet that still implies a yield of 7.3%.
Presuming more stable trading ahead and typically solid cash generation, that looks very attractive against dismally low interest rates. In which case, the share price could re-rate higher to bring the yield into line with other similar income-bearing assets.
A 5% yield on a 9p dividend would equal a 180p share price.
