ii view: Saga shares surge 20% as speed of recovery surprises

First-half results to 31 July

• Revenue up 12% to £367.5 million
• Underlying pre-tax profit up 98% to £46.6 million
• Net debt down 17% to £429 million
• Debt leverage ratio of 2.7 times, down from 4.3 times
• No dividend payment

Guidance:

• Now expects to achieve an underlying profit before tax of £100 million or more earlier than the original January 2030 target
• Now expects to achieve a debt leverage ratio (net debt-to-adjusted profit) of below two times before 2030

Chief executive Mike Hazell said:

"Saga has delivered another very strong set of financial results, building on the substantial progress we made last year. Our simplified approach to business has brought strategic clarity to our decision making and ensured customer focus is our number one priority.

"Profitability has increased significantly in the first half of the year and we expect this to drive a strong full year outcome, ahead of our previous guidance. All our core businesses are growing, cash generation has increased and debt continues to fall. Underpinning all of this, customer satisfaction has increased further, with our transactional net promoter score rising for the third consecutive year.”

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ii round-up:

Saga (LSE:SAGA) today said it expects to achieve profit and debt reduction targets earlier than its original objective of January 2030, thanks to its move to utilise external partnerships.

New motor and home insurance is now fully executed by Ageas SA/ NV (EURONEXT:AGS) and a new pet insurance deal agreed with Allianz SE (XETRA:ALV) UK. A savings partnership with NatWest Group (LSE:NWG) has attracted over £2.1 billion in deposits since launching in December.

First-half adjusted pre-tax profits to late July about doubled from a year ago to £46.6 million, exceeding management’s prior hopes, with group net debt down 17% to £429 million.

Shares in the FTSE 250 company rose over 20% in UK trading having come into these latest results up by around 63% so far in 2026. Fellow cruise operator Carnival Corporation Ltd (NYSE:CCL), who also just reported latest results, has fallen by close to a fifth during that time. The FTSE 250 index is up almost 10% year-to-date.

Alongside insurance, personal finance products and newsletters to customers, Saga offers ocean and river cruises via its own selection of vessels as well as organising other more traditional holidays such as those to beach destinations.

Insurance adjusted profit rose 75% to £15.9 million. Passenger growth across ocean and river cruises as well as other holidays pushed adjusted profits up 45% to £60.3 million.

Operations for the remaining business, including savings and publishing, are expected to be aided by an imminent move to a new technology partnership with Specialist Computer Centres plc.

No dividend continues to be paid. The group’s net debt-to-adjusted profit ratio of 2.7 times, pushed higher by the pandemic, is now down from 4.3 times a year ago. Saga continues to target adjusted pre-tax profit of £100 million or more and a gearing ratio of under two times.

Saga is likely to issue a full-year trading update in mid-to-late January.

ii view:

Started in 1951, Saga today employs around 3,000 people. Ocean cruises and general holidays generated most sales during this latest period at 40% and 27% respectively. That was followed by river cruises at 9%, motor and other insurances each at 7%, home insurance 5%, and money services and publishing most of the 5% balance.  

For investors, elevated energy prices pressuring disposable consumer incomes could hinder travel demand going forward. A forward price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. And the lack of any dividend payment contrasts with a forecast income yield of close to 4.5% at insurance rival Admiral Group (LSE:ADM). The many factors outside of management’s control such as fuel prices, pandemics, and the weather can all hurt travel performance.  

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More favourably, a rejuvenated business model does appear to be driving progress. Group net debt continues to decline, with a refinancing of debt to 2031 previously made. A customer base more likely to be utilising savings to boost pension incomes than paying a mortgage may benefit from higher interest rates, while the number of people aged over 50 in the UK is expected to rise to around 31.5 million by 2050 versus 26.4 million in 2024.

For now, a partnership business model and generally robust demand for travel following the pandemic look to provide ongoing momentum. Management has clearly got a grip on the business and is heading in the right direction faster than expected. There are, however, plenty of risks, and investors will watching closely to see if the company can keep up the good work.

Positives:

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

Negatives:

• Uncertain economic outlook
• No current dividend payment

The average rating of stock market analysts:

Buy