It won’t be another giveaway float but Saga can’t afford to let down investors

Investment view: Saga’s forthcoming flotation has prompted a grey gold rush, with 700,000 of the company’s customers registering an interest in taking part in the listings.

Web-savvy over 50s, who use the company for everything from motor insurance to cruises to carers, still have until lunchtime today to sign up for the shares. But should they?

The increasingly controversial privatisation of Royal Mail has no doubt played a role in encouraging people to join the stampede. Having been floated at 330p, its shares hit a high of 615p within a matter of weeks and are still trading above 550p – leading to a political storm. From the investor’s point of view, however, and even with applicants getting only minimum allocations of shares, that’s free money and what’s not to like about that?

Unfortunately, the private equity firms that own Saga aren’t likely to repeat the sort of mistake made by the Government. This sell-off will not be Royal Mail redux, nor anything like it.

Despite high investor demand, the bears have been savaging the float all week. The Daily Telegraph, whose readers have a similar demographic to Saga’s customers, has been a notable sceptic. But it’s hardly alone. And spread better IG’s grey market (highly appropriate, this moniker) indicates that if the shares are priced near the top of the range at 245p, there won’t be much in the way of early profits for investors who buy in. 

However, there is a counter to all this negativity. Investors might not make the hundreds of millions they collectively pocketed in the cheap-as-chips Royal Mail sell-off, but there are still profits to be had through buying into the Saga story – not least because it cannot afford to depart from that narrative.

One of Saga’s strongest selling points is its brand. With so many firms treating elderly consumers with benign neglect at best, Saga stands out – and its customers respect, even love it for that reason.

That brand would be badly damaged were the company and its owners be seen to have sold  customers an investment pup with Saga shares. It could also make future share sales difficult as  the current owners will still own a majority of the share after the float. So Saga needs to price this float to go. And it would be to the private equity firms’ benefit to leave something in the tank for the new owners. 

Assuming the shares are priced at the top of the range, the company’s multiple based on next year’s forecast earnings won’t be much above 18 times (with a yield approaching 3 per cent). Does that represent value? It isn’t easy to say with any certainty.

Saga is a complicated business. It currently makes most of its money from insurance and insurance broking (close to four-fifths of its earnings), but that’s due to fall to around  50 per cent over the next few years as other financial services and new businesses take up the slack.

There is also a travel business, including a couple of cruise ships, various other financial services, and even care provision.

This, then, is in effect a mini conglomerate, and the stock market usually values conglomerates at less than the sum of their parts. Saga is hoping that it will prove the exception, adding value to businesses through attaching its brand to them.

The company’s debt burden will be around £700m post flotation, a relatively heavy  weight to carry but manageable.

As for the future, the group is also seeking to expand into new markets and grow existing ones, and the elevator sales pitch for Saga is pretty clear. The number in the over-50s age group that it targets is set to grow by 10 million over the next 10 years. Britain’s demographic is an ageing one. Health and care provision has potential – at least for the company that can get it right – while the Government’s decision to junk the requirement mandating that people who retire buy an annuity means that advice will be in high demand.

Some of the new business areas that Saga is targeting are already fairly crowded fields. And some are risky – just imagine the future for Saga if it managed to hire bad apples for its care business. Still, with the clout of its brand  and its database of customers, the company could still succeed, especially if it were to operate in a professional manner and avoid the obvious pitfalls that rivals in those fields seem to have a habit of falling into.

Really, the fears may be over stated and earnings could easily start to take off after relatively sluggish recent growth.

Those who apply for shares have to put up their money – at least £1,000 – and will only know how many they are going to get after the pricing is complete.

Customers will, however, qualify for a bonus of one share for every 20 they hold for more than a year.

Saga is by no means risk free. But the need to keep its demanding customers happy means the company should be sensible when it comes to making a pricing decision. That, for me, swings the balance in favour of buying. Albeit with a degree of caution.

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
PROMOTED VIDEO
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?