Saga says travel business hit by coronavirus outbreak

(Sharecast News) - Saga shares were under pressure on Thursday as the over-50s specialist said its travel business had been hit by the coronavirus outbreak.
The company said it had seen a "robust" start to trading in its insurance business, with both the retail broking and underwriting segments trading as expected, while the insurance business continues to make good progress in execution of the strategy set out last April.

However, the travel division has been hit by the recent COVID-19 outbreak, it said.

In particular, the tour operations businesses have seen an increase in cancellations and suppressed demand, in line with the industry. Forward passenger bookings for 2020/21 were down around 20% compared to the previous year, with a "more significant" impact in recent weeks.

Saga said that given its relatively low level of cost commitments and lower exposure to Northern Europe and Far East destinations, it was able to react to changes in demand and "flex" elements of its cost base for the rest of the year.

"The evolution of COVID-19 and the impact this will have on full year earnings for 2020/21 cannot be predicted with any certainty at the current time," it said. "While our travel business will be impacted, the group expects the performance and cash generation of the Insurance business to be largely unaffected. There are a range of actions the group can take to mitigate against weaker trading in the Travel business, such as the cost efficiency actions already underway and announced in the recent trading statement."

Saga's results for the year ended 31 January 2020 are due on 2 April 2020. In the meantime, it reiterated that underlying pre-tax profit is set to be in line with expectations.

The company also announced completion of the sale of introductory care agencies Patricia Whites and Country Cousins to Limerston Capital for ?14m.

At 1133 GMT, the shares were down 7.7% at 22.81p.

William Ryder, equity analyst at Hargreaves Lansdown, said: "Saga is primarily an insurer, but coronavirus related disruption in travel has dulled one of the brighter parts of the business. The shares are down over 45% since 20 February 2020, and today's update just confirms the group is facing problems.

"The outbreak has hit most companies in the travel and leisure sector, but Saga wasn't in a great place to begin with. At the beginning of the year the shares changed hands on a forward price-to-earnings ratio of 6.8 times, primarily reflecting challenges faced in the insurance division.

"The group also announced the sale of some non-core assets to reduce debt. We think this is a good move as all focus needs to be on stabilising the key profit centres and reducing the debt burden."