Saga Management Needs to Get a Grip, says Hobson

THE WEEK: Morningstar columist Rodney Hobson says investors caught out by Saga's share price drop should stay in - but he wouldn't invest any more cash

Rodney Hobson 8 December, 2017 | 10:56AM
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The most worrying aspect of the profit warnings from Saga (SAGA) was the way that management was apparently completely caught out by the collapse of Monarch Airlines and was blissfully unaware of the impact that this would have on Saga’s tour operations.

At times I do wonder what investors want

The last trading update we had from the services to the over 50s specialist came with interim results on 22 September, and very bullish it was, too, with an 11.1% rise in the dividend. In particular, it assured shareholders that the travel business “has had another strong period of trading” with the tour business generating a 7.6% increase in revenue from a modest increase in passengers.

That was, admittedly, just before Monarch went bust but there were warning signs. Monarch nearly lost its licence in 2016 but managed to scramble enough money together to keep going. Similar concerns were in the public domain a year later.

The decision of Saga chairman Andrew Goodsell to stand down was announced after Monarch’s demise, so there was an opportunity to alert the markets at that point. It would have taken the shine off his 26 years of service, 14 as chairman, but that has now happened anyway.

Some investors had a better grip of the situation. Saga shares had already slid from 215p in March to 180p late last month, though they were starting to tick up again when the bombshell landed, wiping off a quarter of the share price and sending them 40% below the spring peak.

Those who got caught out might as well stay in, as the underlying business looks reasonably sound, although one profit warning tends to be followed by another, so it certainly wouldn’t be wrong to cut your losses. It would be highly risky to commit fresh money until we can sure that management has got a better grip.

Meanwhile, this is yet another warning of the dangers of buying into flotations from venture capitalists.

Insurer Raises Spirits But Not Share Price

Let’s hear it for insurance giant Legal & General (LGEN), which has raised festive spirits with one of the most cheerful trading updates of 2017. It is set for a record year after growing market share, with “formidable” momentum in all businesses. The past few weeks have been particularly strong.

This news inexplicably failed to send the shares higher, even though they are down from recent highs. They stand only about 15p higher than a year ago. At times I do wonder what investors want. I generally go off the past five years and in the case of L&G that has meant five years of rising profits and rising dividends.

The shares offer a decent yield. They are worth a look if, like me, you are interested in solid, reliable companies that are boring except for the moment the dividend drops into your bank account.

Rival Prudential (PRU), which has become increasingly focussed on Asia, is reported to be trying to sell £13 billion of its £33 billion UK annuity business. That’s a great opportunity for L&G to take even more market share as long as it doesn’t get into a bidding war.

Where’s the Santa Rally? 

It’s a Christmas tradition that some commentator has to mention the fabled Santa rally, and since I haven’t seen anyone else mention the supposed upward surge of stock markets towards year end I’d better so the honours.

It’s a myth, in case no-one told you at primary school. Shares have fallen back four times since May after the FTSE 100 index crossed 7,500 points and they are moving erratically sideways. I believe they will test that level again soon. Just don’t think it has anything to do with Christmas.

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Legal & General Group PLC248.60 GBX-1.78
Prudential PLC735.20 GBX-1.00Rating
Saga PLC107.60 GBX-6.27

About Author

Rodney Hobson

Rodney Hobson  is a columnist for and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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