Saga PLC slumps 23% on profit warning: is it a better buy than Prudential plc, Old Mutual plc and RSA insurance Group plc?

Could Saga PLC (LON:SAGA) (SAGA.L) offer more investment potential than Prudential plc (LON:PRU) (PRU.L), Old Mutual plc (LON:OML) (OML.L) and RSA insurance Group plc (LON:RSA) (RSA.L)?

Saga PLC
Saga PLC

The Saga PLC (LON:SAGA) (SAGA.L) share price has fallen 23% today after it released a profit warning. The company’s growth in underlying PBT is now expected to be between 1% and 2% for the year to 31 January 2018. This has been negatively impacted by more difficult trading conditions in insurance broking during the period, as well as the Monarch Airlines administration. The latter has affected its Tour Operations business.

Offsetting this to some extent, though, is expected to be strong performance for the company’s Retail Broking business. Written profit for the business unit is expected to be ahead of last year, with a strong performance in motor partially offset by a challenging trading environment in home and travel insurance.

Further, the company’s in-house underwriter has continued to make good progress in small and large personal injury claims. It now expects reserve releases to be at a similar level to the previous year. The company’s Travel segment has traded well, but has been impacted by the collapse of Monarch Airlines. This will incur a one-off cost of around £2 million.

A review of the company’s operating structure has been completed. Around £10 million in annualised savings are expected to be realised next year.

In the last year the Saga share price has fallen 27%. That’s a worse performance than other financial services-related stocks such as Prudential plc (LON:PRU) (PRU.L), Old Mutual plc (LON:OML) (OML.L) and RSA insurance Group plc (LON:RSA) (RSA.L). Prudential has gained 13%, RSA Insurance is up 10% and the Old Mutual share price is 5% higher.

In my view, Saga has a fundamentally sound business. It has experienced a disappointing period which could cause investor sentiment to decline further. Therefore, in the short run I believe its shares could be volatile. However, if it is able to offer improved performance in its next update then it could become a stock with increasing investment appeal.