Elliott Advisors’ raid on Saga depends on an insurance turnaround. The activist investor on Wednesday clambered aboard the UK company which specialises in selling cruises and cover to the over-50s, disclosing it had taken a 5% stake. Selling the travel business may help reverse a share price which had fallen almost 60% this year. But any rejuvenation requires a revival of Saga’s largest business.
The company is all about chasing the grey pound but its customers have declined even as the total number of aged consumers grows. Saga has also failed to demonstrate sufficient benefits from cross-selling, say, holidays as well as holiday insurance. Even after a 12% jump on Wednesday, its market value is just 542 million pounds. That’s less than the value of the insurance division, which Numis analysts reckon is worth 630 million pounds, assuming a multiple of 9 times forecast earnings for 2021. The cruises and tours units have an equity value of more than 200 million pounds, assuming multiples similar to larger rivals Carnival and Tui. Selling them could help reduce Saga’s net debt of about 400 million pounds, much of which is attached to its cruise ships.
Yet any change of course must start with the insurance business. Saga shares plunged earlier this year after Chief Executive Lance Batchelor decided to sharply cut prices and focus on marketing directly to consumers, instead of using price comparison platforms. That followed a hefty profit warning in December last year.
The hope is that rival insurers will eventually have to follow suit by abandoning cheap “teaser” rates for insurance policies. But Batchelor, who has repeatedly disappointed investors, will not be around to steer: he’s leaving in January next year. That gives Elliott some sway over choosing a replacement who takes Saga in a different direction.
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