Broker tips: Saga, Auction Technology

(Sharecast News) - Berenberg initiated coverage of Saga on Thursday with a 'buy' rating and 1,025p price target as it anticipates "plain sailing ahead".

"Saga is a specialist provider of products and services for people aged over 50, and has undergone a material transformation from a complex, over-levered business, to a predominantly travel-focused one with a capital-light insurance offering," it noted.

"With the transformation almost complete, we see plain sailing ahead for Saga, where we expect its durable brand and strong travel offering to drive growth and cash generation."

The bank pointed out that historically, Saga was constrained by a legacy underwriting business, which exposed it to risks and volatility. Having signed a partnership with insurer Ageas in 2024, the transformation to a capital-light insurance broker is almost complete, it said. "We expect this earnings stream to be highly visible and generate positive cash flow," the bank said.

It also highlighted Saga's "uniquely positioned brand and offering". Berenberg said that throughout its 75-year history, Saga has focused and tailored its approach to the over-50s demographic in the UK, which equates to around 26.7m potential customers or 38% of the population.

"This cohort is expected to grow by circa 8% in the next 10 years and by more than 20% in the next 30 years," it said. "These customers are also higher value, with travelling and exploring new countries and cultures remaining one of their top priorities. Saga tailors its products to these customers, driving high repeat bookings, high and growing net promoter scores (NPS), and thus highly visible earnings."

Berenberg also argued that Saga's "high-quality" travel offering was driving growth and said it remains bullish on the outlook for travel.

"Travel and tourism spend continues to outpace GDP growth, with long-term industry fundamentals, such as increasing incomes and rising allocation to travel, supporting the sector," the bank said. "Saga's customer base continues to prioritise travel with the over-65s segment the fastest-growing age group for spend. Some 80% of Saga's profit before tax is generated from its Ocean Cruise business, which continues to see more than 90% load factors and double-digit per diem growth."

Berenberg said it expects 9% revenue and 24% pre-tax profit growth in FY27 respectively, and a 6-7% revenue/EBITDA CAGR and 10% PBT CAGR to the end of the decade.

RBC Capital Markets lifted its price target on Auction Technology as it upgraded its model to reflect cost-savings driven upgrades.

The bank, which hiked the price target to 400p from 310p, said it was encouraged to hear new chief executive Duncan Painter acknowledge previous issues and return the focus to the core business of selling items in the first-half results.

RBC noted Painter's comments about how the group had focused too much on valued added services and not on the core auction business.

"We believe this change in tone is an important step in rebuilding credibility with the market and reinvigorating the core," it said. "We also understand that the COO has departed the business and Duncan is now in control of both sales and operations and has made it a mission to get closer to the client base."

RBC continued: "After digging deeper though at A&A, we are unclear if the narrative matches the data and at I&C we question whether rectifying market share losses is a quick process.

"We update our model, reflecting the cost-savings driven upgrades for FY26 and beyond, with our revised price target of 400p underpinned by FitzWalter's recent attempts to acquire the company."

RBC reiterated its 'sector perform' rating on the shares.

FitzWalter Capital made 12 takeover approaches to Auction Technology, the last one at 400p per share. All of them were rejected and the investment firm announced in February that it was abandoning its pursuit of the online auction operator.