Saga under the cosh as Peel Hunt slashes price target
Peel Hunt slashed its price target on shares of over-50s specialist Saga to 110p from 180p on Thursday as it cuts its earnings per share estimates to account for pricing cuts and the company's investment in growing the customer base.
FTSE 250
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Saga
105.80p
16:40 26/04/24
The broker said buy-rated Saga was now getting its priorities right after losing its way and resetting its strategy, refocusing on the insurance broking business and returning to its core direct distribution strategy.
However, Peel noted that this comes at a high cost, with the broker's January 2020/21/22 adjusted earnings per share estimates declining by 40%/50%/47% to 7.7p/7.6/9.3p, respectively. It pointed out that Saga has lowered its insurance new business and renewal margins, is investing in new value-add products and is rebooting its direct distribution strategy, increasing customer acquisition costs.
This drags down 2019/20 EBITDA by 19% to £184m and underlying pre-tax profit by 43% to £100m, Peel said.
It said Saga's business model for the 50+ demographic remains attractive, but execution has disappointed.The de-rating in the shares is "understandable", said the broker, leaving them trading at an estimated 2020 price-to-earnings of 7.5x.
Peel's new price target values Saga at 14x price-to-earnings.
"The stock remains a buy as we patiently believe Saga can be revitalised and finally complete its transition to an affinity broking group, for which the business is uniquely positioned."
At 1300 BST, the shares were down 4.1% at 58.40p.