ii view: Saga revenue rises but challenges persist

First-half results to 31 July

• Revenue up 15% to £355 million
• Underlying profit before tax down 4% to £13.4 million
• Loss before tax of £78 million, down from £262 million
• Net debt down 9% to £657 million

Guidance:

• Expects full-year double-digit revenue growth

Chief executive Euan Sutherland said:

“I am pleased to announce a 15% increase in revenue for the first half of the year, due to the continued growth of our Cruise and Travel businesses, in addition to further debt reduction. Alongside this, under consistent accounting standards, we report an underlying half year profit that is broadly in line with the prior year.

“Looking ahead to the full year, we are keeping tight control of our costs and are confident that we will deliver significant double-digit growth in revenue and underlying profit that is ahead of market estimates, and repay the May 2024 bond when it falls due. This, alongside our continued focus on debt reduction, leaves us well placed as we position Saga for long-term sustainable growth.”

ii round-up:

Saga (LSE:SAGA) is a specialist provider of products and services for people aged 50 and over. 

It operates across the two main divisions. Cruise and Travel provides both ocean and river cruises along with wider travel services including tour holidays.

Insurance sells policies covering travel, medical, motor and home. Its small Money division offers personal finance products such as savings accounts.   

For a round-up of these latest results announced on 27 September, please click here. 

ii view:

Started in 1951, Saga today employs around 4,000 people. 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 challenging economic backdrop including a cost-of-living crisis for consumers cannot be overlooked, and challenges persist at its insurance business. Group net debt of £657 million compares to a stock market value of under £200 million. No current dividend payment contrasts to an historic and estimated future yield of over 3% at insurance rival Admiral Group (LSE:ADM). The many factors outside of management’s control including fuel prices and the weather can also hinder travel performance.  

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On the upside, a recovery in demand from the pandemic at its travel related businesses continues, with travel related revenues up 46% year-over-year. Net debt was further reduced, management remains focused on lowering costs, while a strategy to grow other businesses including personal finance products is ongoing. 

For now, and while a recovery in travel offers hope, more cautious investors may wish to await further debt reduction and a return to headline group profitability before considering these speculative shares.  

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:

Buy