When I was a boy, I rememberconstant campaigns about extreme pensioner poverty. Now its the younger generation we worryabout, as the goldenoldiesenjoy record pension values and house prices, and are castingaround for ways tospend their cash.
Booming
Saga (LSE: SAGA), purveyor ofproducts and services to the over-50s, is perfectly placed to benefit from theso-called super boomers. The company issued a trading update today, sodoes ithave a good story to tell?
This mornings report, which covers the period from 1 August 2016 to 10 January 2017, was lighton detail, but investors will be reassured to hear that the group continued to trade strongly in the second half of the year, and is on course to meet full-yearexpectations.It also reported significant progress in analysing itscustomer database tomap activities and behaviours andidentify key drivers of future value.
Cruising
Chief executive officer Lance Batchelor said: The business continues to perform well, with our core insurance and travel divisions both demonstrating consistency in delivering robust results.
Batchelor was simply telling markets what they wereexpecting, and with no surprises either way, its share price has responded with maturity and equanimity. Or it could be that investors are stillstruggling to get excited by this stock after its underpowered flotation in May 2014.
Floating
Strong retail demand left the initial offer three times oversubscribed, but hopes that it could do a Royal Mail were quicklydashed. The shares surged to 259p but soonslumpedto the 185p flotation price, and nearly three years later, they arentdoing much better. Today, Saga trades at 197p. Plentyof small investors will hold shares in the company, typically just a few thousand pounds, and will have been underwhelmed by the experience. So should they hang on for better times?
The over-50snow make up more than a third of the UK population, and Saga already has 2.7mactive customers. As this demographic expands, we can expect the numbers to continue rising.
Sailing
The companyis keen to expand into new areas beyond its traditional cruise, holidayand insurance services, notably throughSagaMoney, which offers branded investment services and financial advice, andother pilot projects such asHome Care and Retirement Villages. These should offer plenty of cross-selling opportunities. However, whileSaga is a trusted name its not always the cheapest and cant rely on the undying loyalty of internet savvy over-50s, who have no problem hittingthe comparison sites in search of low-costinsurance, holidays and investment platforms.
Managementis wise to diversify as motor insurance is a competitive arena and the companyscruise passengernumbers recently slipped. Trading at a forecast valuation of 13.5 times earnings, the stocklooks reasonably priced. A forecast yield of 4.8%, covered 1.6 times, adds to the sense of solidity. As does its steady forecast earnings per share growth of 6% and 7% overthe next couple ofyears. Right now, it all looksplain sailing for Saga.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.