Saga shares dive on £2m Monarch cost warning

Monarch's demise in October left Saga with two million pounds in extra costs

Shares in Saga fell to new lows on Wednesday after the company issued a profits warning.

The provider of travel and insurance services for people aged 50 and above saw its market value plunge by as much as 25% in morning deals.

It had earlier used a trading update to inform investors it now expected full-year underlying pre-tax profit to grow by just 1%-2% – undershooting previous guidance.

It blamed more challenging trading in insurance broking and a £2m one-off hit to its tour business from the collapse of Monarch Airlines in October.

In addition, the company said it expected the same profit measure in 2018 to be 5% down on this year because of the current headwinds and its decision to invest £10m on "customer acquisition" – marketing, in other words.

Saga said a review of its operating structure would result in about £10m of annualised savings next year.

It had previously announced 100 redundancies.

Chief executive, Lance Batchelor, said: "Against a backdrop of some challenging trading conditions in our final quarter, we continue to develop the business for the long term.

"With greater customer insight and a stronger business platform, now is the right time for Saga to invest in growing the customer base and the business.

"We are confident that the actions taken will ultimately see a better quality of earnings and profit growth across the business, supporting our progressive dividend policy for the benefit of our shareholders."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said of the profit warning: "The collapse of Monarch Airlines and industry wide headwinds in home insurance are outside Saga's control.

"But lower reserve releases and a rapid decline in benefits from the introduction of the motor broker panel shouldn't be coming as a surprise to management.

"The fact that the group feels the need to throw more cash at customer acquisition is also less than reassuring.

"Saga's pitch was always that its huge mailing list means all the clients it could ever want are just a mail drop away, the extra spending suggests it might not be as clean cut as that."

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The company floated in 2014 at an offer price of 185p-per-share.

They closed at 142.5p on Wednesday, 21% lower on the day.

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