Insurance companies are not always the most exciting investment prospect, and in these days of low interest rates, can be outright dangerous. Low investment returns inhibit the ability of insurers to pay out on claims.
Saga, however has carved itself out a niche market for the over 50s, and shares have outperformed other insurers since listing on the LSE over two years ago. Insurance makes up the bulk of its profit but other financial services products, package and cruise holidays, domiciliary care, and a monthly subscription magazine diversify its revenue stream.
Unlike other financial companies, which have had a lot of bad press since the financial crisis, Saga is a well trusted brand, with its roots as a magazine. Trust in the brand allows it to cross-sell multiple third-party products to its large database of customers. As we know from companies like Facebook, a big user base is valuable.
The so-called “grey pound” is a valuable one and Saga almost monopolise the UK market. George Osborne’s recent pension reforms are already showing some positive effect. The reforms have opened up pensions beyond just annuities; there is more room for pensioners to invest in in other areas, but also splash out a bit more and enjoy retirement. Saga is the go-to company for pensioners looking for other financial products, holidays and cruises.
Continued good performance rests on a strong economy, but even then the baby boomers will be in a better position to weather the storm.
Shares currently sit near record highs at 225p, up from the IPO price of 185p in 2014. Saga trades on a forward P/E of 16.3, which is a bit pricey for the insurance sector but below the market average.
CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.