Saga’s voyage of recovery interrupted by declining profits
Retirement insurance and travel firm Saga this morning said it was making strong progress on its recovery despite reporting declining underlying before-tax profit.
Underlying profit at the firm dropped 3.7 per cent to £106.8m – which was due to Saga investing heavily in its business and marketing, chief exec Lance Batchelor told City A.M.
The firm's share price plummeted 25 per cent last December after it said underlying profits were set to be lower than expected.
Despite the fall in profits, the market has reacted favourably to the update, as shares are currently trading 2.46 per cent up.
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But Batchelor said he was "happy" with today's results, which showed growth in a number of important areas.
"After flat or gently declining numbers we invested in growing our customer base. We've now cut our cost base, and we're pleased investment in customer growth is going ahead as planned.
"We’ve attracted 19 per cent more new customers in so after a dip, we're back to the same kind of customer base and we’re in a position to drive more growth."
Lee Wild, head of equity strategy at Interactive Investors said the boost to customer numbers was a positive sign for Saga.
"Crucially, winning a lot more car and home insurance work has catapulted customer numbers back to levels seen before the profit warning. It’s also good to see lower costs, and Saga is throwing off enough cash to keep paying the 3p interim dividend."
However, he warned the future could be difficult. "Travel profit is flat at best, and it will not be easy offsetting a likely weather-related hit to home insurance business and lower motor premiums during the second half."
But Batchelor passed off these future concerns, saying he didn't expect out of season trading to massively affect business.
"Our customers are a bit difference, with weather we saw in first half of this year, whatever we expect to happen in winter our customers aren’t impacted as severely, as they aren't tied to school holidays or work as much."
A note from Peel Hunt also said Saga was "undervalued," and can now "start to rebuild confidence in what we continue to believe is an attractive affinity broker model".
He also said the replacement of two of its older cruise ships, with one due to start services next July, was expected to give profits a lift. Saga's Possibilities membership scheme will also be important to retain loyal customers who can be sold a number of different products across its travel and insurance portfolio.
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