Saga confidently hikes dividend as travel business remains robust

Although first-half sales declined and the dividend was short of expectations, Saga beat analyst's profits forecasts and was confident the business is on track to meet its full year targets.

Revenue in the six months ended 31 July fell by 8.6% to £437.2m, with trading profits flat at £117.6m and profits before tax up 3.9% to £104.5m - which was ahead of the of company-compiled consensus forecast of £100m.

In April, the FTSE 250 company had guided towards profits growth of 5-7% for the year, following 5.2% growth in trading profits last year, and management said the business was "on track" to meet this.

Last year, chief executive Lance Batchelor set out a new strategy to transform its insurance underwriting business into a broker of third party services under the Saga brand, requiring lower capital in order to boost dividend returns.

Adjusting for the new focus, trading profits in the core business increased 2%, even despite making extra payments for the Saga Sapphire cruise ship, while including the benefit of derivative gains meant PBT was lifted 8.5% higher.

An interim dividend of 2.7p was proposed, up 23% on last year's payout but slightly below consensus expectations.

Strong cash generation during the half enabled a reduction in the ratio of net debt to EBITDA to 2.2 times from 2.4 a year before, as part of a plan to cut the ratio of 1.5-2.0 in the medium term.

Batchelor said: "The robust operational performance in the first half means that we are on track to meet our targets for the full year."

He added that there had been "no discernible impact to date" from Brexit, even on the travel business, where a recent poll of customers found 99% said that the decision would not make them reconsider their future holiday plans.

Although the travel business saw a 1% decline in tour operating passenger numbers and a 21% drop in ship passenger days, both revenue and profit delivered growth, despite the £4.7m impact of maintenance on the Sapphire cruise ship.

"We have continued to see a shift in the mix of sales to longer-haul, higher-value products as customers look beyond some of the more traditional holiday destinations," the company said.

Insurance delivered a strong performance in competitive environment with trading profits up 3.7% thanks to an exceptional performance from motor compensating for weaker home insurance.

Analysts at Goldman Sachs said they "see the travel outlook as reassuring, but limited motor panel earnings as a small negative", expecting a "muted response" from the shares.

After an initial rise, Saga shares were back close to parity by 0915 BST on Wednesday at 222.3p.