Saga’s latest setback and Berkeley spreads its wings

“The UK market sat on its hands as investors waited for the latest Fed meeting with bated breath. The FTSE 100 dipped 0.2% to 7,429,” says Russ Mould, Investment Director at AJ Bell.

“In stark contrast, Asian shares rallied after US President Donald Trump said on Twitter that he’d had a ‘very good’ call with Chinese President Xi Jinping, raising investors’ hopes of an amicable resolution to the trade war between the US and China.

“Hong Kong’s Hang Seng index jumped 2.4% and China’s SSE Composite index advanced 1%."

Saga

“Saga is having a hard job digging itself out of a massive hole.

“Having issued several profit warnings in the past few years, changed its insurance strategy, and announced plans to part ways with its chief executive, the business has come back with a patchy trading update.

“In its defence, the turnaround plan is still fairly new and it will take time to see if the strategy works.

“Launching three-year fixed price policies in home and motor insurance is a brave move considering how claims inflation is really hurting the industry. The strategy may attract new customers but the real test is whether Saga makes any money from it.

“A warning from its travel business isn’t helping sentiment towards the business – already at rock bottom judging by how its share price is performing.

“The company is in a sticky mess and is now reliant on flawless execution to try and put the business back on track.

“With outgoing CEO Lance Batchelor not scheduled to leave the business until January next year, it is quite a long wait for a new leader to be appointed and steer the company in a healthier direction.

“In the meantime, the very depressed market valuation leaves Saga vulnerable to takeover interest from rivals.

“Despite the recent setbacks its brand still has considerable value and it does have a large customer base which presents opportunities to make money should someone feel brave enough to buy the company while it is on its knees.”

Berkeley

“Until recently Berkeley was very much a town mouse, but it is now heading out into the country, moving beyond its previous focus on building high end homes in London.

“Eight of the 11 developments the company launched in the 12-month period to 30 April were outside the capital.

“This shift in strategy was ultimately forced on the company by a downturn in the London property market which is being exacerbated by political and economic uncertainty.

“A 20% decline in full year profit would normally be met with an extremely negative market reaction but Berkeley has been flagging for some time that the previous year’s total would represent a peak and the ultimate outcome actually beat expectations.

“The company’s chairman and founder Tony Pidgley has an excellent reputation for calling the housing market and he has largely been a victim of his own success.

“The business invested after the financial crisis when land was cheap and benefited hugely from the subsequent recovery in London real estate.

“Profit is set to slide further but Berkeley is keeping investors on side by outlining and delivering generous cash returns. The business continues to build up its reserves of net cash – a consequence of a significant reduction in investment.”

These articles are for information purposes only and are not a personal recommendation or advice.