Saga shares surge 10% after annual results

Covid caused massive problems for the holidays business, but there is optimism as lockdowns ease.

Saga’s (LSE:SAGA) insurance business has inevitably been doing the heavy lifting in the past year, although prospects for the Travel unit are promising.

An overall pre-tax loss of £61.2 million for the 12 months ended 31 January 2021 compares with a deficit of £300.9 million the previous year, largely due to significantly lower impairment charges of £59.8 million versus a previous £383 million. Covid caused an 84% slump in underlying profit before tax to £17.1 million.

The financial position remains sound, bolstered by a capital raise of £150 million in September, with the company currently having net cash of £75 million and access to an undrawn credit facility of £100 million. The current cash burn of £6-£8 million per month is therefore containable for the foreseeable future, although the pace and level of the return to travel will be central to prospects.

Cruise bookings are 20% higher than last year, which augurs well for a return to form once travel restrictions are clarified and subsequently lifted. The high post-pandemic demand could equalise revenues, which overall dipped 58% despite a strong performance from the insurance business where, for example, there were fewer motor claims on the simple basis that the level of consumers driving dropped for the most part of the year.

The share price has mirrored the potential return to growth, having doubled in the last six months and now standing ahead by 55% over the last year, as compared to a gain of 24% for the wider FTSE All Share. The limited market consensus of the shares as a buy reflects Saga’s demographic which is vaccinated, wealthy and ready to travel once more.

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In terms of the markets generally, the positive newsflow shows little sign of abating.

In the US, job openings of over 7 million were reported for February, outpacing hiring in a clearly promising move towards a further reduction of the unemployment rate. 

More broadly, the International Monetary Fund, or IMF, raised its global growth forecast to 6% for this year, a rate not seen since the 1970s, as the release of pent-up demand could provide the kind of economic boost which has not been seen in decades.

Even so, markets were broadly flat, with the possibility that there will now be a move to a temporary holding pattern ahead of the imminent first-quarter reporting season in the US. Expectations are relatively high and earnings will need to deliver to consolidate the gains seen so far in the year to date, with the Dow Jones, S&P 500 and Nasdaq having risen by 9.2%, 8.5% and 6.3% respectively.

In the UK, the FTSE 100 index has so far captured the twin benefits of increased international attention and a switch towards the value end of the investment spectrum, with the increase in the year to date of 6% reflective of generally prevailing optimism.