ii view: Saga celebrates cruises revival but insurance disappoints

Full-year results to 31 January

• Revenue up 12% to £741 million
• Underlying pre-tax profit up 146% to £38.2 million
• Loss before tax narrows to £129 million from £273 million
• Net debt down 10% to £637 million

Guidance:

• Expects adjusted profits for the year head to broadly consistent with the year just gone

Chief executive Mike Hazell said:

"Off the back of this strong performance, we are now also taking action to position the business for long-term success. I am excited about the potential that partnerships present for Saga and, as a result, we are accelerating the work we are doing to explore such opportunities across both our Ocean Cruise and Insurance businesses.

"I am confident in our strategic direction, which underpinned by the strength of our brand, allows us to continue to serve our unique customer base. Our decision to accelerate our partnership strategy will provide us with a capital-light route to growth, reducing debt and delivering long-term sustainable value for all our stakeholders."

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ii round-up:

Over 50’s product and services provider Saga (LSE:SAGA) today detailed a return to profit for its travel related services but with ongoing challenges at its insurance business. 

Customer demand for ocean and river cruises helped group-wide adjusted profit more than double year-over-year to £38 million. Travel bookings remained strong into the new financial year but with required investment to generate competitive pricing for its insurance business expected to hit divisional profits. That means overall group profit will be about flat for the year ahead. 

Saga shares fell 3% in UK trading having come into this latest news down around a quarter year-to-date. That’s similar to major ocean cruise operator Carnival (LSE:CCL) and in contrast to a 1% gain for insurance provider Admiral Group (LSE:ADM). 

Along with cruises and other holidays, the insurance division sells policies covering travel, medical, motor and home requirements, with Saga also operating a small Money division providing personal finance products such as savings accounts.   

Adjusted profit for its ocean cruise business rose to £35.5 million from a loss last year of £0.7 million. River cruises swung to a profit of £3 million from a loss of £5.1 million the year before.

A 9% fall in insurance policy customers contributed to a fall in divisional adjusted profit to £40 million from £71.5 million. Financial services profit about halved to £1.1 million as higher interest rates reduced demand for equity release products. 

An overall group loss of £129 million is attributed to restructuring costs of £40 million and a £105 million goodwill impairment at the insurance business. But that is an improvement from an overall loss of £273 million the year before. 

Group net debt reduced 10% to £637 million to take its leverage ratio down to 5.4 times from 7.5 times. An AGM is scheduled for 25 June. 

ii view:

Started in 1951, Saga today employs around 4,000 people. Cruises and travel related services generated its biggest slug of sales over this latest financial year at 55%, followed by insurance at 41% and other services such as personal finance products like equity release at 4%. 

For investors, required investment in insurance policy pricing is expected to hinder profits in the year ahead, with the industry still highly competitive. Group net debt of £637 million compares to a stock market value of under £160 million. There's no dividend which compares with an historic and forecast yield of over 2.5% at insurance rival Admiral, while the many factors outside of management’s control including fuel prices and the weather can hinder travel performance.  

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More favourably, a recovery in demand from the pandemic for its travel businesses continues, with related revenue up 34% year-over-year. Net debt has further reduced, insurance profits are tipped to keep growing, while a strategy to utilise partnerships is being pursued. 

On balance, and while the recovery in travel is positive, more cautious investors may wait for further debt reduction and a return to headline group profitability before dipping their toe in.

Positives: 

• Its targeted demographic – 50 and over – is growing
• Previously strengthened management team

Negatives:

• Uncertain economic outlook
• Net debt above current stock market value

The average rating of stock market analysts:

Hold