4th Apr 2019 12:04
LONDON (Alliance News) - Moody's Investors Service on Thursday downgraded Saga PLC's outlook to negative from stable following a profit warning and swing to annual loss.
The credit agency however affirmed the insurer and travel firm's Ba1 corporate family rating, Ba1-PD probability of default rating and Ba1 backed senior unsecured debt rating.
Saga shares were trading 34% lower at 70.50 pence each on Thursday midday, hitting a five-year low and dragging the company to the bottom of the FTSE 250 index.
"The change in outlook to negative from stable reflects elevated execution risk associated with the group's strategy to grow its insurance broking and travel businesses to offset the expected material deterioration in revenue and earnings over the next two years," Moody's said.
It added: "Given these profitability challenges, the negative outlook also reflects the risk that Saga's leverage will remain above our expectation for the current rating level for a prolonged period."
Saga posted a GBP134.6 million pretax loss for 2019 financial year compared with pretax profit of GBP180.9 million a year ago, due to a significant impairment charge relating to a re-assessment of the carrying value of goodwill in its Insurance operations.
On an adjusted basis, excluding the impairment charge, pretax profit fell 5.4% year-on-year to GBP180.3 million from GBP190.6 million.
Furthermore, Saga warned that adjusted pretax profit in financial 2020 will fall in the range of GBP105 million to GBP120 million, significantly reduced from 2019's GBP180.3 million, due to the implementation of a "fundamental shift in strategy" to address the challenges faced by the business.
"Over the coming 12 to 24 months, Moody's expects a meaningful reduction in the group's earnings, primarily driven by a significant decline in prior year reserve releases in Saga's underwriting business," the ratings agency said.
Furthermore, Moody's said it anticipated lower broking revenues in financial 2019. For the year ended January 31, broking revenue fell 19% to GBP105.8 million.
"Saga's ability to restore historic profit levels and reduce leverage thus depend on its ability to successfully execute its strategy to grow its broking, tour operating and cruises businesses," Moody's said.
It concluded: "Notwithstanding the expected reduction in near-term earnings, Moody's believes the actions being taken by the group will help set up a more agile operating platform, which will enable Saga to grow while sustaining profit margins in the future."
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