Saga - not just for the over-50 investor

Saga: Is it a retailer or an insurer? Well, despite the vast majority of its earnings being financial services related, it (un)happily sits in the retail sector. This may look smart from sector rating angle, but runs the risk that analysts and investors aren’t quite sure where to file it or who should cover it. In the end, that confusion probably isn’t good for the share price. Anyway, these maiden (and so slightly pro-forma) annual results to 31^st January 2015 have just beaten expectations with pre-tax profit up 9.6% to £195.5m and eps up 13.5% to 12.6p. They previously indicated that 40%-50% of earnings would be paid out, but have gone for the top end at 50%, resulting in a 4.1p maiden final on the post float earnings. Good cash conversion has seen the net debt to EBITDA ratio come down from (a pro-forma) 3.1x to 2.5x. The motor side is trading well with a good combined ratio of 78% (not sustainable?) and good claims experience allowing a further £57.8m of reserve releases. On the home side margins have expanded, whilst travel saw EBITDA grow by 29%, fuelled by an acquisition (Destinology).

In January they issued a strategic plan to concentrate on finance (especially insurance) and travel, whilst withdrawing from public healthcare services. Looking ahead they are shooting for a trading EBITDA growth of 5%-7% this year amid generally upbeat trading comments. They are looking to launch a motor panel later this year and to build up their wealth management offering (with partner Tilney Bestinvest). They are also increasing the dividend pay-out range to 40%-60%. So if the eps move up by say 6%, then that gets you to 13.7p. Given the comments on cash generation the 60% pay-out looks possible, which would be a punchy dividend of 8.2p for FY2016. On the share price of 188p, that is a PE (for whatever that is worth) of 13.7x and a yield of 4.4%. The shares have struggled to make headway since flotation, but the group ticks many boxes with encouraging demographics, growth opportunities and good cash generation. The shares have rallied from the sub-150p hit late last year, but it is not too late to clamber on board. (Neil Cumming^, 30^th April 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