When I was a boy, I remember constant campaigns about extreme pensioner poverty. Now it’s the younger generation we worry about, as the golden oldies enjoy record pension values and house prices, and are casting around for ways to spend their cash.
Booming
Saga (LSE: SAGA), purveyor of products and services to the over-50s, is perfectly placed to benefit from the so-called ‘super boomers’. The company issued a trading update today, so does it have a good story to tell?
This morning’s report, which covers the period from 1 August 2016 to 10 January 2017, was light on detail, but investors will be reassured to hear that the group continued to trade strongly in the second half of the year, and is on course to meet full-year expectations. It also reported significant progress in analysing its customer database to map activities and behaviours and identify key drivers of future value.
Cruising
Chief executive officer Lance Batchelor said: “The business continues to perform well, with our core insurance and travel divisions both demonstrating consistency in delivering robust results.”
Batchelor was simply telling markets what they were expecting, and with no surprises either way, its share price has responded with maturity and equanimity. Or it could be that investors are still struggling to get excited by this stock after its underpowered flotation in May 2014.
Floating
Strong retail demand left the initial offer three times oversubscribed, but hopes that it could “do a Royal Mail” were quickly dashed. The shares surged to 259p but soon slumped to the 185p flotation price, and nearly three years later, they aren’t doing much better. Today, Saga trades at 197p. Plenty of small investors will hold shares in the company, typically just a few thousand pounds, and will have been underwhelmed by the experience. So should they hang on for better times?
The over-50s now make up more than a third of the UK population, and Saga already has 2.7m active customers. As this demographic expands, we can expect the numbers to continue rising.
Sailing
The company is keen to expand into new areas beyond its traditional cruise, holiday and insurance services, notably through SagaMoney, which offers branded investment services and financial advice, and other pilot projects such as Home Care and Retirement Villages. These should offer plenty of cross-selling opportunities. However, while Saga is a trusted name it’s not always the cheapest and can’t rely on the undying loyalty of internet savvy over-50s, who have no problem hitting the comparison sites in search of low-cost insurance, holidays and investment platforms.
Management is wise to diversify as motor insurance is a competitive arena and the company’s cruise passenger numbers recently slipped. Trading at a forecast valuation of 13.5 times earnings, the stock looks reasonably priced. A forecast yield of 4.8%, covered 1.6 times, adds to the sense of solidity. As does its steady forecast earnings per share growth of 6% and 7% over the next couple of years. Right now, it all looks plain sailing for Saga.
