Saga in talks with Ageas about possible tie-up, shares spark

11th Oct 2024 09:37

(Sharecast News) - Shares in Saga jumped on Friday, after the travel-to-insurance business revealed it was in advanced discussions with Belgium's Ageas about a potential partnership deal.

The London-listed company, which specialises in people over 50, said it had entered into exclusive negotiations with Ageas to establish a 20-year partnership for motor and home insurance.

Ageas will also acquire Saga's insurance underwriting business, Acromas Insurance Company Limited (AICL), for £67.5m, under the proposed deal.

As at 0915 BST, Saga had put on 8% at 135.6p. Ageas, which is listed in Brussels, was largely unchanged.

Mike Hazell, chief executive, said the partnership - dubbed Affinity - would be a "winning combination".

He continued: "We have been clear for some time that developing a partnership approach is the right strategy, providing us with a capital-light route to growth and the ability to reduce debt, leading to the creation of a long-term sustainable value for all of our stakeholders."

Under the proposed partnership terms, Ageas will pay Saga around £80m upfront. Additional payments of £30m will then be paid in 2026 and 2032, subject to certain policy volume and profitability targets being bet.

Saga will also receive commission on the gross written premiums generated over the term of the partnership.

The acquisition of AICL, meanwhile, is currently slated to complete in the second quarter of 2025.

The update came as Saga posted results for the six months to 31 July. Revenues jumped 13% to £404.8m, or by 11% to £393.3m on an underlying basis.

Trading earnings before interest, tax, depreciation and amortisation increased 27% to £67.4m, while underlying pre-tax profits soared 240% to £27.2m.

Saga said it had benefited from ongoing strong momentum in its cruise and travel businesses, and an improved insurance underwriting performance.

However, insurance broking saw underlying pre-tax profits plunge to £12.2m from £23.8m on the back of ongoing "challenging" conditions. As a result, the group's pre-tax losses widened to £104m from £77.8m.

Hazell said: "Market conditions for broking remained challenging, particularly for home.

"While this continues to have a material impact on profitability, and resulted in an impairment of goodwill, we have been taking action to stabilise the business in the short term and position it for long-term sustainable policy growth."

A further announcement on the proposed deal with Ageas, which remains subject to both parties agreeing binding documentation, would be made in due course, Saga noted.

Dan Coatsworth, investment analyst at AJ Bell, said: "[Saga] has broadly failed to exploit the opportunities in front of it over the decade it has been a public company.

"The market likes the proposed 20-year partnership with Ageas. Not only will this provide Saga with a useful injection of cash, but it also points to a possible future for the company of focusing purely on manging its customers and the marketing side, while the back end functions are handled by specialist operators.

"This could allow Saga to grow without employing lots of capital."