It is no secret that our nation is ageing: recent government projections suggest a 50% increase in numbers of over-65s between 2010 and 2030 and a doubling of over-85s. If we broaden our definition of “ageing”, there are 22.8 million over-50s in Britain today, but this will rise to 29.1 million within 20 years.
This shift in demographics is likely to place enormous strain on the NHS and other public services and alter working practices, and you don’t need me to explain the impact on pension provision.
For a well-established company which specialises in providing services for just this age group, however, the next few decades must represent a golden age.
The news that over-50s lifestyle group Saga intends to float therefore makes sound sense and it is little wonder that interest in the float has been huge, with around 700,000 of the company’s customers expressing an interest in buying shares. If even a fraction of them buy, this could be one of the biggest floats of recent years.
Saga says it wants to price its shares at between 185p and 245p, valuing the firm at £2bn to £2.5bn. Although often mocked, the company is a powerful brand: its database of 10 million people represents half of all over-50s. Saga Magazine is Britain’s highest circulating subscription magazine with more than a million readers, and 2.1 million customers last year bought a holiday, insurance or other Saga product. Furthermore, there are plans to move into wealth management and healthcare.
That’s not a bad sum for a company founded 60 years ago to fill a Folkestone hotel in the off-season.
There’s no doubt the float could provide an ideal opportunity to tap into the growing grey market, but here are some wrinkles still to be ironed out: Saga’s pace of growth is, as one commentator puts it, “more bath chair than Bugatti”, while much of the value may have already been stripped out by its private equity owners.
Furthermore, with 96% of the company’s profit last year coming from insurance (with 2% from travel and 2% from healthcare), some fund managers believe it is massively overpriced.
“Saga is basically an insurer being dressed up as a branded consumer company – that’s not right,” says Premier Asset Management head of UK equities, Chris White. “It’s an ugly duckling being sold as a beautiful swan. As an insurer it should be compared with companies such as esure and Aviva. When you do that, Saga looks expensive.”
It is too early to tell how well Saga will capitalise on the incredibly favourable demographic story to the benefit of shareholders. The hope for investors must be, rather like its members, that its best years are still ahead of it.
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