Business Overview
Saga Plc (SAGA) is a Folkestone, the United Kingdom-based company, which provides exceptional products and first-class services to its customers over the age group of 50 from last 65 years. The company has divided its operations into three divisions being Travel, Insurance and Emerging Businesses. The company is awarded for its products and services which includes personal finance, cruises & holidays, the Saga Magazine and insurance.

Trading Update (as on 28^th January 2020)
The company announced its trading for the period from 1^st August 2019 to 27^th January 2020. The company anticipate full-year underlying profit before tax to be in line with the prior guidance. In the insurance broking business, the company has shown decent progress. On 26^th January 2019, the company had sold 317k, 3-year fixed price policies in the Insurance broking business, with more than 60 per cent of direct new business clients choosing this product since it was fully introduced. On a direct basis, the new business customers in the Insurance Broking business increased to around 57% as compared with the corresponding period of the last year (31 December 2019: 50%). Across home and motor business, the customer retention of 75% is approximately two percentage points better than in the previous period. The company anticipate Saga branded home and motor policies for the full year ended 31 January 2020 to be around 3% lower than the previous year. This will reflect a disciplined approach to new business and a highly competitive market. Home and motor margins are anticipated to be in the range of £71-£74. The reserves in aggregate for the Insurance Underwriting business are tracking in line with anticipations.

Over the first half of the year, the company is building on the excellent progress in the Cruise business. For the Spirit of Discovery, the first six months of operation have been successful. For the second half, the company anticipate the new ship to achieve EBITDA of over £20 million in the Cruise business.In the Spirit of Adventure, the build programme was on track, and the company stay on budget and on time for delivery in August 2020. For the financial year 2021, the company has forward bookings of 76 per cent of full-year target levels. In the cruise business, the company stay fully on track with the anticipations for 40 million pounds of EBITDA per new ship. The revenue in Tour Operations are expected to decrease approximately 5% as compared with the previous year but in line with trading at the half-year.

The company previously said that they have been executing a proactive strategy to improve pricing practices and improve renewal pricing for long-standing customers.With the current appointments of Euan Sutherland as Group CEO, Gilles Normand as Group COO, and Cheryl Agius as Insurance CEO, the company has a robust team in place to enhance the company's financial and operational performance.

Share Price Performance

Daily Chart as at January-28-20, before the market closed (Source: Thomson Reuters)

Saga PLC shares were trading at GBX 44.12 at the time of writing before the market close (at 12:46 PM GMT) on 28th January 2020 and were up by 5.70% versus the previous day closing price. Stock 52 weeks High and Low are GBX 125.90/GBX 31.78. The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.66.

Conclusion
The company is seeing higher inflation on theft costs and third-party damage, with overall inflation running at approximately 7% as compared to longer-term anticipations of approximately 5%.The company continue to focus on disciplined implementation of the strategy, against a backdrop of a challenging external environment in Travel and Insurance.

Changing market dynamics along with a continued programme of investment in digital capabilities augur well for the group's future growth.The group is highly exposed to exogenous factors which can severely affect its performance. The potential for a rise in frequency and severity of claims due to climate change can reduce the group's performance. Fundamental changes in the motor industry, most notably electric and autonomous vehicles, can change the nature of the motor insurance industry, something the company may not be prepared for. However, any sustained economic downturn that may follow Brexit could increase the risk to the strategic plans and reduce the Group's income from investments. In the near term, the company’s operational and financial performance are expected to decline. Saga will also continue to face challenging markets in Travel and Insurance.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 44.12 (as on 28^th January 2020, before the market close), while we look for any upcoming catalysts in the near term.

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