Saga (LSE: SAGA) is best known as a magazine sold to the over-50s, but its publishing arm is just one of five divisions, including insurance, travel and healthcare, all sold through the magazine. When its private-equity backers cashed out two years ago, they floated Saga and persuaded 160,000 loyal customers to buy shares in the company.
They have not done too badly, pushing through 200p this week, up 8% from the float price of 185p. Results released on Tuesday saw an increase in earnings and a hike in the full-year dividend to 7.2p. Its database of "contactable people" also crept higher, from 10.8 million to 11.2 million people in the last year.
But Saga could be about to get more aggressive. CEO Lance Batchelor hopes to "put a rocket under the shares" with a plan to free up cash, says Danny Fortson in The Sunday Times. Rather than run its insurance policies in-house, it will farm them out to third parties, including German insurance giant, Munich Re.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That will free up capital and widen the range of products it can offer. It should also lower risk, by switching Saga from an insurance provider to a commission-collecting cash machine. According to brokerage Peel Hunt, the new model could release about £150m.
So far, Saga has hardly been a "barnstormer", says Fortson. In many ways, that is reassuring for its readers and investors. But if Batchelor can "pull off his makeover", the stock could promptly re-rate higher from 14 to 16 times earnings. "Buy."
-
10 vinyl records worth up to £10,000 - is one in your collection?News Vinyl is experiencing a resurgence and collectors will pay up to £10,000 for some albums - is it time to dust off your old records?
-
FCA: Banks are still short-changing savers
The latest FCA review finds that while public shaming has encouraged providers into offering better deals on savings, many of those with closed accounts are still being shortchanged.
