Shares in over-50s insurer Saga (SAGA) have fallen by a third in value to 72p after changing its strategy for its insurance division and cutting the dividend by over 50% to 4p in the year to 31 January 2019.
The company has been struggling with increasing challenges, particularly in its insurance division, which has hit customer numbers and profitability.
In its insurance operations, Saga has revealed a non-cash impairment charge of £310m, contributing to annual pre-tax losses of £134.6m.
READ MORE ABOUT SAGA HERE
Saga says a decline in reserve releases and insurance margins, renewal pricing changes, as well as investment in new products is expected to weigh on future profits.
Underlying pre-tax profit in the year to 31 January 2020 is forecast to reach £105m to £120m, which is 35% lower than analysts’ previous expectations.
HOW IS THE STRATEGY CHANGING?
Saga plans to launch new products with added benefits such as a three-year fixed price for some of its home and motor products.
‘This strategy makes a lot of sense but it will require investment in the business which means future profits will be hit for some time,’ comments AJ Bell investment director Russ Mould.
He argues Saga is struggling to keep its historically loyal customers as it has become easier for people to compare insurance policy prices and find specialist holidays across the broader market.
WAS THERE ANY GOOD NEWS?
While underlying pre-tax profit fell 5.4% to £180.3m in the year ending 31 January 2019, this was in line with consensus expectations.
JP Morgan Cazenove analyst Edward Morris says Saga’s motor, home broking and travel divisions delivered trading close to his forecasts.
‘Our caution on Saga does not stem from its longer-term potential, but rather from its balance sheet, which we view as weak relative to other companies in the non-life sector,’ comments Morris.
