Saga bumps up dividend as broker business model evolves

Group revenue was up 7% to £963.2m in the year to 31 January, with trading EBITDA up 5% to £238.8m due to a strong performance from the motor insurance business, lower than expected home insurance profits and in-line travel earnings.

Directors have proposed hiking the full year dividend to 7.2p, a payout ratio of 57% of net earnings, well ahead of 6.5p consensus expectations.

The over-50s-focused group said it was increasing its dividend pay-out range from 40%-60% to 50%-70% going forward.

Chief executive Lance Batchelor said the company had made "significant progress" in delivering the strategy set out a year ago of transforming the insurance underwriting business into more of a broker of third party services under the Saga brand, requiring lower capital in order to boost dividend returns.

Batchelor said the new payout range showed management's confidence in this evolution, together with "continued strong profit and cash generation performance".

Profit before tax and earnings per share were both up 55% to £176.2m and 13.3p respectively, though profit for the year from continuing operations of £148.1m falling short of the consensus £149m.

Cash has also been invested in the purchase of a new cruise ship, which is expected to significantly improve profits growth of the travel business once delivered.

An investment management joint venture, Saga Investment Services, has been launched since the year-end and was up and running ahead of the end of tax year, while other pilot schemes include homecare and retirement villages.

Broker Peel Hunt observed that the shares traded hands for 13.5 times expected earnings, a discount to the 15 ratio of the insurance sector, while adding that the transition towards a broker model "should close the discount to the broker sector", which trades at 16 times forward earnings.