Interactive Investor

ii view: Saga hails continued travel momentum

20th June 2023 12:18

Keith Bowman from interactive investor

Shares in this ageing population play are down by more than a third over the last year. Buy, sell, or hold?

AGM trading update for four months to 31 May

Chief executive Euan Sutherland said:

"Four months into the financial year, we have continued to build on the momentum in our Cruise and Travel operations, while making further progress in our growth agenda through the development of our newer businesses. Year-end underlying profit is expected to be well ahead of the prior year.”

ii round-up:

Cruise, travel, insurance, and financial services company Saga (LSE:SAGA) today flagged a continuing upturn in demand for its holiday related services despite ongoing challenges at its insurance division. 

Demand for ocean cruises and travel related services had risen 7% and 37% respectively compared to the same time last year, with both expected to prove profitable over the full year on an adjusted basis.

Saga shares rose around 1% in UK trading having come into this latest announcement down by just over a third over the last year. That’s similar to holiday company TUI AG (LSE:TUI) and in contrast to a near 60% gain for major ocean cruise operator Carnival (LSE:CCL)

Saga offers both ocean and river cruises along with wider travel services including tour holidays. Insurance products encompass travel, medical, motor and home policies, with the division’s own insurance underwriting business remaining up for sale to reduce debt and achieve a more capital-light business model.

Total insurance related product sales for the four months to the end of May fell 6% year-over-year, largely due to the ongoing inflationary cost challenges impacting wider industry motor policy sales. Both travel and medical related demand rose, with its private medical insurance expected to be enhanced given a new partnership with BUPA.   

Saga Money business is planning to launch new products later in the year while its relatively new media business continues to expand audience numbers. 

A further £16 million of cruise ship related debt had been repaid, with available group cash as of the end of May standing at £149.5 million. 

First-half results to the end of July are scheduled for 27 September.  

ii view:

Started in 1951, Saga is today a specialist provider of products and services to people aged 50 and over. Cruises and travel related services generated its biggest slug of sales over its last financial year at around 52%, followed by insurance at 44%, and other services such as personal finance products like equity release at 4%. 

For investors, the tough economic backdrop, including an ongoing cost-of-living crisis, cannot be overlooked. A focus on reducing group debt continues with financing costs potentially rising given higher interest rates. No current dividend payment compares to a historic and estimated future yield of over 3.5% at insurance rival Admiral Group (LSE:ADM), while the many factors outside of management’s control such as fuel prices and the weather can hinder the business.  

On the upside, a post-pandemic recovery in demand for its travel related businesses continues, while the sale of its insurance underwriting business is being pursued. Group costs remain a focus, as does a strategy to grow other businesses including personal finance products. 

On balance, and while any investment in Saga is speculative, continued signs of progress are likely to encourage interest in the shares.  

Positives: 

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

Negatives:

  • Uncertain economic outlook
  • High net debt

The average rating of stock market analysts:

Buy

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