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Saga slumps, Intu surges as mid-caps steal limelight

Shares in insurance and travel provider for over-50s slump on profit warning while Intu Properties surges on bid from Hammerson.

Saga slumps, Intu surges as mid-caps steal limelight

Shares in Saga (SAGAG) have tumbled after the provider of travel and insurance services for the over-50s issued a profit warning, warning of challenging conditions in its broking business and flagging the impact of the Monarch Airlines collapse on its tour division.

The shares slumped to the bottom of the FTSE 250, losing a quarter of their value to trade at 135.8p, after it said in an unscheduled update that profits were likely to grow by as little as 1% this year and fall 5% in the next.

The group said that within its insurance business, strong performance from in motor cover was 'offset by a challenging trading environment in home and travel insurance'.

It flagged that the collapse of Monarch Airlines had resulted in a £2 million one-off cost for its tour operations business.

Saga also warned that 'reserve releases', the unlocking of funds set aside for future claims, were expected to fall by between £10 million and £15 million next year.

The outsourcing of some of its motor cover to a panel yielded a £19.9 million benefit to revenues in the year to the end of January. But this is expected to fall by £10 million this year, with no benefit in future years.

The group will also spend a further £10 million on customer acquisition, starting next year.

'The collapse of Monarch Airlines and industry-wide headwinds in home insurance are outside Saga's control,' said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

'But lower reserve releases and a rapid decline in benefits from the introduction of the motor broker panel shouldn’t be coming as a surprise to management.

'The fact that the group feels the need to throw more cash at customer acquisition is also less than reassuring. Saga’s pitch was always that its huge mailing list means all the clients it could ever want are just a mail drop away, the extra spending suggests it might not be as clean cut as that.'

The news will be a blow to  Artemis Income managers Adrian Frost and Nick Shenton, who are among the biggest backers of the stock, holding 4.7% of the shares, according to Thomson Reuters.

The Majedie UK Equity and M&G Recovery funds are also among the top shareholders, while Neil Woodford's Woodford Income Focus fund owns a small stake.

At the other end of the 'mid-cap' index, shares in Intu Properties (INTUP) soared 19.8% to 238.3p  after the shopping centre investment company agreed to a £3.4 billion takeover by larger rival Hammerson (HMSO). Shares in Hammerson fell 2% to 524p on the news.

Shares in Intu had fallen nearly 30% this year before Hammerson's offer, amid fears over the impact of Brexit and the rise of online shopping.

'Even at the price implied by Hammerson's offer of 0.475 of its own shares for every one of its target's, Intu's shares trade at a 37% discount to net asset value, to suggest that Hammerson's management think they are picking up a bargain in the form of the owner of the Trafford Centre in Manchester, Lakeside and Gateshead's Metrocentre,' said Russ Mould, investment director at AJ Bell.

On the FTSE 100, rival real estate investment trusts were buoyed by the news.

British Land (BLND) rose 1.7% to 649p and Land Securities (LAND) was up 1.2% at 948p, bucking a falling index, down 10 points at 7,318.

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