The group has decided to float up to half of the company, valuing it between £2 billion and £2.5 billion.
Unlike some of the recent companies to have gained a quote on the London Stock Exchange, a far more significant proportion of the shares that are being offered will go to the retail market and private investors rather than large institutions. Almost 700,000 Saga customers have indicated an interest in the IPO and, should the shares perform well, this would ensure both customers and shareholders are happy. Should this not to be the case, both parties could hold it against the firm, presenting something of a double-edged sword for the management.
Saga has a number of operations under its umbrella, ranging from insurance – covering travel, home, pets, medical and life – to personal finance. It also operates a tourism arm, running cruise ships, hotels and package holidays. As the older generation has become an increasingly large demographic, the company also publish a monthly magazine with a circulation of over 500,000 readers. At one point it was the largest-selling monthly magazine in the UK.
The minimum investment in the IPO will be £1,000, and, in an effort to attract income investors, the company has stated it will initially be looking to pay out between 40% and 50% of the company’s net income in the form of dividends. Depending on what the final price is, and the company’s ability to replicate last year’s profits of over £200 million, it could offer an attractive yield.
Saga’s market capitalisation will not be large enough to see it vying for a slot in the FTSE 100 in the short term, as the proceeds of the IPO will be used to write down its debt to £700 million. The IPO is fully underwritten by a number of institutions lead by Citigroup, and is expected to be oversubscribed, which could see the market attach a premium to the share price when it starts trading.
IG is running a grey market which currently shows that clients are anticipating a market capitalisation of between £2.25 and £2.45 billion. This client trade-driven price is at a premium to Saga’s own company valuation, but previous IPO’s in Royal Mail and Twitter have proven a IG grey market can be a relatively accurate predictor of market valuations, with the actual closing market cap for Twitter on its first day being only 3% higher than that predicted by the IG grey market.