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Which market analysts are covering Goodwin?

Citi downgraded the stock cutting price target to 95p from 150p. FY25 Profit Before Tax target cut to £920m from consensus £955m. For FY 26, Citi cut PBT to £930m. Reflects continuing weak consumer environment and JD intent not to discount.

Ofcourse, dont know if they raised Adidas on strong consumer environment. That is brokers for you.

Hi BanburyBoy

I share your caution. The market seems to have ignored the amendments to covenants as a flag that Saga has tight cash flow. It needed flexibility. The sale of the underwriting business at a low point when it hit a 125% combined ratio while sales growth is under pressure seems to be a response to the tight liquidity. The Capital Markets presentation highlighted the launch of Saga Media that adds more cost in the form of heavy weights without giving clarity on a profit model. Saga has done this before and these diversions are accelerating under Euan.

I have not seen the Q&A from the Trading Update yet as the recording of the webcast has not been posted as yet on their website; odd for a company that is highlighting its exceptional media capabilities. I would like to know what they say about the amount that they can get for the underwriting business now.

Clearly, this view is at odds with the market and many on this BB. Interesting to see how this pans out but I prefer to hunt elsewhere like Admiral.

Finally doing what they should have done over a year ago and sell the underwriting business. They were sub-scale and it was not core to their proposition. Ofcourse, Euan fluffed around and now selling when the business is performing poorly and will not fetch enough money.

Saga. Media is another one of Euan’s distractions.

The saga of poor management continues. I am amazed that the supposedly savvy founder allows this farce to continue at such a huge cost to himself.

Hi Ya Banburyboy!

I see the optimism for Saga continues but glad you do not have money on it anymore. This company has continuously relied on the goodwill and enthusiasm of its customers, many of whom became shareholders. The management (Euan Sutherland) however is slow to react and diverts with jargon and consultant gobbledygook. Saga does not have the cash to buy the bonds. In fact, the bonds trading at 64 tells you that the market has concerns whether the bonds will be repaid.

I bet a private equity investor, hedge fund or distressed credit fund will be tracking to buy the bonds cheaper, await a default and then take the company private. They could realise value by selling the insurance underwriting pieces, taking out cost of the newly installed management layers and quixotic new business initiatives, loss making travel businesses, etc. We will get there once the UK economy goes into recession.

Hope springs eternal if you fall in love with a stock!

Yes I too miss BanburyBoy and his enthusiasm that fostered a good discussion on this bulletin board. Saga management defeated us all as it has done since the IPO. I switched into Admiral and have done better. Great management.

Anyone have a view on Time Out Group. I understand the Markets are doing well in Lisbon, Dubai, etc. but not much news. The key is refinancing of maturing debt. No idea how that is going.

Banbury

The insurance as not as good as you think. Note sales volume is down, margins will be down to £60 per policy. An impairment of goodwill is now coming as stated below in the Trading Update.

The Retail Broking business is expected to return to motor and home policy growth in 2023/24, albeit with a lower average margin per policy, which we currently estimate to be around £60. Given this, the Group will evaluate the impact of lower future average margins on the carrying value of the £719m Insurance goodwill as part of our interim reporting. Our preliminary view is that we will need to impair Insurance goodwill, with such charges taken outside of Underlying Profit Before Tax.

The Reserve Releases will be in line or above with the long term rate which is lower than the last two years. They state long term combined ratio if 97% (Admiral 86%) but who knows where it goes in the short term. This is Management using WordSmith and its past record of not delivering should be a worry.

The new products they are introducing like multi-car cover have been done already by the likes of Admiral. Saga is behind the innovation curve.

As a poster on this BB noted, the management keeps selling hope in the future but does not deliver. The guidance of £35m to £50m underlying profit for 2022/3 is quite wide. Note consensus is at the bottom end of this range and has been coming down.

BanburyBoy
I agree that there will be some releases as the company guided but they will be a lot lower than 2020/21. Reserves are released only if the actual result is better than expected. I think you also have to take account of higher inflation and claims frequency emerging after the company did the presentations in March. Hence, I expect the Insurance Underwriting PBT to be less than £10m.

As you say, the TU may not tell us much about this and we will need to wait for the interims to see how this is going.

On my holding, I sold out last week at 191p and took my losses. I have not analysed closely how they might be doing against their covenants but I fear that with the drop in insurance and the rising costs in Travel, may mean that they need relief on these although I do not see a Rights issue at this price.

Sorry, you asked me so I have to disclose my sell, as not keen to promote negativity. I fear disappointment ahead.

BanburyBoy
The underwriting PBT was boosted by releases of prior year reserves. These releases accelerated because during COVID in 2020 and 2021, claims frequency was lower as people were driving less. Thus, the company was over provisioned and released the reserves. It will not have such a high level of releases any more as claims frequency has risen post re-openings. Additionally, claims costs have risen due to inflation and higher used car prices.

The company warned that reserve releases will be lower in 2022/23 in its annual report. The CFO stated this in the company presentation to analysts. The CFO was questioned again on this point in the presentation two days later to retail investors, a recording of which is available on Investor Meet Company in which he unambiguously repeated the £10m PBT figure for Insurance Underwriting in the Q&A. Analysts have reduced the 2022/23 earnings forecasts based on this and also in the expectation that insurance profits will hurt even more because of the change in regulation and the fact that inflation has been much higher than expected since the company announced its annual results.

It is not true that other insurance companies are not experiencing the same, lower reserve releases, higher frequency of claims and higher costs due to inflation. This is an industry wide experience. Admiral ,which is the market leader in motor insurance has made the same statements in its annual report and presentations for 2021 released in March 2022. Their stock is also down, from 2951p on 1st March 22 to 2244p today.

My view is that Saga should stick to Retail Broking but not be in underwriting. They are sub-scale in this and ther players are better at it. Better to be in broking and also use co-insurance or reinsurance. They should sell this business. The reserve releases have made things look better but excuse the pun, one should look under the hood.

Banburyboy
The Insurance numbers bear a cold hard look. It is easy to see why there could be a substantial fall from £120m PBT in 2020/21. The 2021/22 insurance PBT of £120m, was made up of £66.4m from retail broking and £54.1m from underwriting. The underwriting number included £42.1m of prior year reserve releases. These were driven by the lower claims costs during COVID. The company has said clearly that reserve releases will be a lot lower in 2022/23 such that the underwriting PBT may be around £10m. If you factor in that claims inflation costs are higher and operating expenses are higher due to inflation, then the underwriting PBT may well be lower. Lets say, £6m to £8m. This means that if the Retail Broking is assumed to do as well as 2021/22 (an optimistic assumption), then the Insurance PBT for 2022/23 will be around £72m. Finance costs and Overhead is £48m. This means £24m net PBT. Now estimate what the Tour and Cruise can generate in PBT. If they break even, the net PBT will be around £24m. Assuming tax expense of £4.5m (same as last year), we have net profit of £20m.

The Consensus Estimate is £35.7m (EPS 25.9p) which tells me that they are assuming a PBT contribution from Travel. You follow the Travel metrics closely so can judge what PBT contribution it might make. But I wanted to show to you why anchoring on £120m PBT for insurance may be fantasy.
Best Wishes

Lucretius is absolutely right. And it looks like the actual results could be worse than guided by the CFO because "return to normal" is faster giving rising to higher claims frequency and costs due to inflation. Someone should check how close SAGA may be to the covenants on its debt such as Debt to EBITDA or Debt to FCF in case the insurance side was a break even

Not the bear case. it was the CFO's guidance and it makes sense given there were no more reserve releases from prior years. It could be worse than guidance given higher claims frequency as things return to normal post covid and the cost inflation. Admiral warns of this amply in its annual report.

Saga's combined ratio was already in mid 90's so could easily go over a 100% as expenses bite. Admiral was at 86%.

Banburyboy
The analyst consensus for 2023 Jan earnings fell sharply over the last month by £30.53m or 15.4p. It is now £35.67m or 25.9p EPS. I think this reflects the Cruise business not performing to expectations but the new factor is the motor insurance market where claims frequency is returning to normal post Covid and claims costs have risen with inflation and higher used car prices. Also, Saga will not have the benefit of prior year reserve releases to the same degree. I am reading this across from studying Admiral Group hat is the leader in motor insurance and has warned about this. The selling today may reflect an overall market see off where Saga will be sold by index fund and ETF investors but there are idiosyncratic issues.

Excellent research, Banburyboy. I was wondering why the share price was weak and your post explains a lot. My enthusiasm for this stock has steadily been muted. Management (Euan Sutherland) and the motor insurance underwriting business remain a concern. On the cruise side, it isn't plain sailing! Hope and pray

Sure BanburyBoy, good to be back in touch.
The pricing On renewals legislation where an insurer must offer the same premiums to new clients as existing clients came into effect at the start of this year. Saga acknowledged that the first few months have been disorderly and it is one reason they could not give guidance for this year. The other reason, btw, is uncertainty around load factors in the cruise business.

The second headwind for insurance is that motor claims are now normalising, post the lock down, while inflation will impact costs. Saga will have a declining positive contribution from reserve releases that are from past underwriting. This will impact profitability at AICL. There was a £10m PBT number indicated by the CFO in today’s call for this year and declining into 23/24.

Let me know if you do not access to the recording of the call today. I do and can come back with the specifics.

Just finished watching the Investor Meet Company presentation. Must say the Q&A session was far more probing and insightful thatn the one with institutional investors two days ago with so called professional analysts.

i recommend posters to watch the Q&A. It gives insight into questions such as why the company did not provide guidance and what is the outlook for the insurance business that is very cloudt at the moment. It will help bring some reality check to some of the far reaching investment views.

Congratulations to Investor Meet Company for bringing such presentations to retail investors and asking the questions UNEDITED.

To be transparent, I am a holder but must be careful not falling in love with a stock just because i own it. The Saga management has not delivered in the past and there is a risk it may not wander off again into adjacent businesses and not say laser focused on the key part which is the Cruise business. Insurance has uncertainties on the horizon.

Yes I am watching it now with a worry . Also watched yesteday's institutional presenttaion. It is worrying where they are headed. Just watch the Customet Insight presenttaion. I fear an expansion of business coming again rather than a razor like focus on existing lines.

Banburyboy
The low margin on the Home business is due to lower risk, as you said. Saga do not underwrite. Also, they lack scale (£76m premiums in 1H 21). Directline and Admiral have much larger businesses and underwrite.

The slow growth of premiums shows that Saga has a tough time cross selling, They sent emails to me pushing Home Insurance but not a huge effort, On renewal of my motor policy they could have tried harder to bundle with Home Insurance and offfer a better deal.
Regards

Banbury good to be chatting again. Rather than give an off the cuff response, let me study your question and respond properly. Just wanted to write so my delay is not taken as rude.