23rd May 2014
The pricing of the Saga IPO at the lower limit of the pricing range at close to 185p shows that the valuation of the firm has come under close scrutiny says one specialist fund manager.
Conditional trading on Friday saw the shares rise a little to 188p. Johan Utterman, manager of the $431m LO Funds Golden Age fund says: “The pricing of the Saga IPO at the low limit of the pricing range shows there has been valuation scrutiny. That said on 14.5 times earnings it is still not a steal.
Mr Utterman, whose fund invests on the theme that stocks exposed to ageing populations will grow faster than the remainder of the economy, says: “This is a company that focused on financial services, travel and healthcare to the over-50’s. Saga has built valuable brand equity. Its core businesses have the potential to grow somewhat faster than the market given the unique exposure to the over-50’s, a segment of the population that is not only growing faster than younger generations but also tends to be wealthier.
“Saga has the opportunity to further expand into healthcare and wealth management, two initiatives which could drive additional growth. However, the positioning of Saga as a “specialized consumer services” company may make the IPO more challenging to place with institutional investors since the vast majority of earnings come from financial services. UK non-life insurers trade on lower multiples than branded consumer stocks.”
“For this reason, we will watch the IPO but not take part for now. Retail and institutional interest in the IPO may mean there are better opportunities to get exposure to Saga in the months ahead.”