ii view: Saga shares popular after sailing back into profit

First-half results to 31 July

• Revenue up 9% to £328 million
• Underlying pre-tax profit down 5% to £23.5 million
• Pre-tax profit of £3.7 million, up from a loss of £116.9 million
• Net debt down 17% to £515 million
• Debt leverage ratio of 4.3 times, down from 4.8 times

Guidance:

• Progressing towards an underlying profit before tax target of £100 million or more by January 2030
• Progressing towards a debt leverage ratio of below two times by January 2030

Chief executive Mike Hazell said:

"I am delighted with the progress we have made in the first six months of this financial year. These are strong results that underline the momentum we have as we continue to deliver our financial and operational objectives.

“In July, we launched our newest River Cruise ship, Spirit of the Moselle, which is already trading well and proving to be very popular with our customers - a clear demonstration of the growth opportunities we have in river cruising.”

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ii round-up:

Saga (LSE:SAGA) today detailed a return to profit driven by strong demand for ocean and river cruises as well as an ongoing transformation of its insurance business.

A first-half profit of £3.7 million to late July compared with a loss of £116.9 million a year ago, with the provider of services and products to people aged 50 and over on track to achieve profit and debt reduction targets laid out in April. 

Shares in the small-cap company rose 5% in UK trading having come into these latest results having doubled over the last year. Major ocean cruise ship operator Carnival (LSE:CCL) is up around two-thirds over that time. The FTSE Small Cap index has risen by close to 5%.

Alongside cruises and other holidays, Saga offers insurance covering travel, medical, motoring and home requirements as well as providing personal finance products such as savings accounts.   

Group-wide adjusted pre-tax profit fell 5% to £23.5 million, hindered by increased financing costs, although management is confident of hitting a targeted annual £100 million or over by January 2030.   

Saga’s net debt fell 17% from a year ago to £515 million, taking its debt leverage ratio down to 4.3 times from 4.8 times and with management pursuing a ratio below two times come January 2030.  

Adjusted revenues for the travel related business climbed 9% at £247 million, helping push adjusted pre-tax profit up 33% to £41.6 million. 

Profits on the same basis for insurance fell to £9.1 million from £11.6 million a year ago, dented by a 10% retreat in overall policy numbers and with a new partnership with Ageas due to go live later this year. 

Personal finance profits stayed broadly flat at £0.2 million as a new seven-year partnership with NatWest Group (LSE:NWG) commenced.    

A full-year trading update is likely late January. 

ii view:

Started in 1951, Saga today employs over 3,500 people. Management focuses include reducing debt and simplifying operations, maximising growth for existing businesses, as well as growing its customer base and deepening customer relationships.  

For investors, challenges for the insurance business persist, with a divisional transition having included the sale of its underwriting business and new management for the broking unit. Group net debt of £515 million as of late July compares to a stock market value of under £350 million. No current dividend payment contrasts with a forecast income yield of over 6% at insurance rival Admiral, while the many factors outside of management’s control such as fuel prices and pandemics, can hinder travel performance.   

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More favourably, customer demand across the travel business continues to increase. In 2024, the number of people aged over 50 in the UK was estimated at 26.4 million and is expected to increase to 31.5 million by 2050. Group net debt continues to fall with a refinancing of debt to 2031 recently made, while a new strategy utilising partnerships is in its early stages.    

In all, reducing group debt is a sizeable task and a lot of good news is reflected in the share price which has more than doubled in the past 12 months. However, progress remains encouraging and the boom in travel since the pandemic shows little sign of fading away. Investors might see this as a slightly higher risk recovery play. 

Positives: 

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

Negatives:

• Uncertain economic outlook
• Many factors outside of management control 

The average rating of stock market analysts:

Buy