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Can Saga’s share price escape from troubled waters?

Saga share price: a Saga cruise ship is docked at port.

Saga [SAGA.L], the travel and insurance group aimed at the over-50s, has had a difficult couple of years since suspending its cruise and tour operations in March 2020 because of the Covid-19 pandemic. As the company prepares to announce its preliminary results for the year to 31 January 2022 on Wednesday, we look at how the business and its shares have been performing, and consider whether an upturn in fortunes may be in the offing. 

Pandemic exacerbates Saga’s sinking share price

When the pandemic first hit, Saga’s shares lost more than two-thirds of their value in the space of about four weeks, falling from 612p on 21 February 2020 to 198p by 20 March. Although the stock climbed to a 52-week high of 464.6p during intraday trading on 24 June last year amid hopes of a travel industry recovery, the emergence of new variants saw the shares slide to 285p by the end of the year. They have fallen a further 16% this year to 244.67p, as of Monday’s close. 

Mind you, Saga’s share price was in a downward spiral before Covid-19 – the stock’s value has plunged more than 90% in the last five years. The question now is not whether the shares can return to the record highs of more than 3,000p last seen in 2016, but whether the easing of travel restrictions can help Saga’s shares rebound to the levels we saw in June. Some estimates suggest that this may be possible. Market data collected by the Financial Times indicate that Saga stock has a median 12-month price target of 428p. Although that’s based on the ratings of only three analysts, it implies an upside of about 75% from the stock’s 21 March closing price.

Losses incurred as cruise ships forced to stay in harbour

For the year ending 31 January 2021, Saga reported an underlying loss before tax of £78.5m, versus a profit of £19.8m the year before, as its travel business was forced into temporary shutdown. The situation improved to some extent last year, as Saga reported an underlying loss before tax of only £2.8m for the six months to 31 July 2021, in line with management’s expectations. 

Commenting on those half-year results in September, CEO Euan Sutherland warned of “future potential volatility relating to Covid-19” but also announced a planned relaunch, adding that he was “confident” that Saga could get back to delivering “sustainable growth and…significant long-term value”.

In October, the company restarted its holiday programme for fully vaccinated tourists. About 98% of its customers supported compulsory vaccination for passengers, according to a Saga survey carried out last year. 

Outlook improves, but risks remain

Saga’s insurance business, the largest part of the group, has continued to perform well during the pandemic.  At its most recent trading update back in January, the company said that motor and home policies had grown 1% on last year, with a margin per policy of £75, and claims in line with expectations. We could also soon see a reserve release due to lower-than-expected claims in 2020-21, as fewer policyholders drove their cars. 

The update also pointed to an improvement in the travel business, with the load factor – a measure of capacity on board Saga’s cruise ships and other tours – back up to 68%. Looking ahead, the load factor is expected to reach 73% for the year to January 2023. 

Saga said it expects to post a small underlying loss before tax for the year to 31 January 2022, but hopes to return to profit in the 2022-23 fiscal year as demand for travel and cruises recovers to more normal levels.

Although Saga, like other travel operators, has struggled during the pandemic, there are signs that its business could recover as travel restrictions are eased. Nevertheless, the pandemic is not officially over and, given Saga’s target demographic, the business remains vulnerable to the threat of new variants and stay-at-home guidelines for the elderly. Bosses will be hoping for calmer weather ahead when they announce Saga’s preliminary full-year results at 7am on Wednesday 23 March.

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