Saga - when is a retailer not a retailer?

Saga: After coming to market with the class of 2014, Saga is one of those yet to sign up a fan club. Perhaps this is in part because, despite looking like a financial services group, they managed to get themselves classified into the General Retail sector. From a rating point of view that looked clever, except that now no one quite knows quite how to look at them. As the CEO, Lance Batchelor says, “I am very clear that our model is predominantly that of a broker, accessing the best products for our customers and delivering them with our own high standards of customer service”. This chimes with their maiden interims last year when, of £130.4m of EBITDA, Financial services were £114.5m. Travel was £15.2m, Healthcare £1.9m less central costs of £1.2m. In the summary of today’s Capital Markets’ Day the importance of Financial Services is being dialled up further through a wealth management jv with Tilney Bestinvest, whilst Healthcare is dialled down by looking to ditch the NHS and Local Authority care homes business.

Overall the opportunity for Saga is huge. There are over 20m over 50s in the UK and that is growing fast. At the interims they said that, at 10.6m names, they have just over half on their database, but only 2.7m are active customers. So they have plenty of scope to deepen and widen their pool of business. Current trading for the year just finishing, to 31^st January 2015, is described as in line. This would be consensus eps of 10.5p, meaning a PE of 15.5x at 163p. They state that the dividend should be at the top end of the 40-50% payout range. So 50% would be 5.25p, but there is only a final this year so I will guess at a 1/3: 2/3 split for a dividend of 3.5p and a yield of 2.1%. Looking out a year, the eps consensus is 13.7p, a PE of 11.9x and a 50% payout would be 6.85p, for a decent yield of 4.2%. This all seems quite attractive, but perhaps the next move is to get themselves put in the right sector, so that the right sector specialists can get to grips with them. (Neil Cumming^, 15^th January 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower