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“The FTSE 100 takes a knock on Thursday, falling 0.6% to 7,377 amid a mixture of big names being weak such as Royal Dutch Shell and BP, and several large caps trading without the rights to their dividend including Lloyds Banking and Direct Line,” says Russ Mould, Investment Director at AJ Bell.
Saga
“It should have been an easy ride for Saga, so where did it all go wrong?
“The business has a very strong brand synonymous with the older generation and has previously boasted of having a loyal customer base.
“Theoretically it should have a captive market to whom it can sell a variety of products ranging from financial services to travel.
“Unfortunately earnings are going backwards as it has struggled to make a success with insurance broking, and volumes and margins are under pressure with its tour operations.
“The key issue is that customers don’t really need to be loyal to Saga unless they are getting something special. After all, it has never been easier to search the internet to find the best price on an insurance policy or to find a specialist holiday such as travelling with like-minded individuals.
“And that’s why Saga has decided to reshape its business and focus on products with added benefits and which are different from the mass market. That makes a lot of sense but it will require investment in the business which means future profits will be hit for some time.
“Saga has clearly been struggling for some time and today’s admission of failure is perhaps long overdue. However it takes a brave person to recognise that the plan isn’t working and to put up their hand and admit they’ve failed.
“Many companies in trouble often keep digging a hole and come up with endless excuses. But to Saga’s credit, admitting and hopefully correcting its mistakes could make the management look stronger. The test is whether shareholders take the same view and let the current leadership team stay in place to complete the turnaround.”
Homeserve
“Homeserve is a classic example of a business that has proven its model in the UK domestic market and successfully exported it overseas.
“Shares in the home emergency repairs business have more than tripled in value in the past five years thanks to success at home and abroad.
“The latest update suggests that the UK has peaked with customer number falling. That won’t be a major problem for Homeserve because its story is now all about rapid growth in North America.”
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