Saga’s figures are heading in the right direction – so should you buy?

Saga the over-50s travel and financial services specialist, has been struggling for years. But now, with the pandemic behind, it it is planning for future growth. Rupert Hargreaves looks at where it went wrong and asks if the shares are now worth buying.

Saga Sapphire cruise ship
Saga spent huge sums on new cruise ships just as the pandemic arrived.  
(Image credit: © Finnbarr Webster/Getty Images)

Saga (LSE: SAGA), the over-50s travel and financial services specialist, has been struggling for the best part of the past decade. Thanks to some strategic mis-steps in insurance, the company entered the pandemic in poor shape, debt was high and sales had been declining for five years.

Further, in the years before, it had spent huge sums on new cruise ships to bulk out its travel and holiday business. Just as these vessels were supposed to come online, the pandemic arrived.

In total, Saga has lost £571m over the past four years – nearly two and a half times its current market value. Still, it looks as if the business is on the way to getting back on track, although you wouldn’t know it from the share price. The stock has slumped 55% over the past 12 months. Since the end of 2019, it’s down by 78%.

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Refinitiv analyst estimates have the firm earning a profit of £35.7m this year, in line with Saga’s own trading projections. According to its latest trading update, management now expects full-year profits to come in at £35m to £50m. It also looks as if the group has put its balance sheet issues behind it.

After raising around £400m last year through a share placing and bond issue, Saga is now expecting leverage to start falling in the second half of the year with the ambition of repaying a £150m bond when it falls due in 2024. In January, the group had a cash buffer of £187m to support its operations.

Saga’s market share should help the company prosper

Ever since Saga went public in 2014, I have been fascinated by the business.

In theory, it should be raking in cash. The Saga brand is well trusted by its main market, the over-50s, and the size of that market is growing steadily. According to the latest UK census figures, the number of over-65s in the UK and Wales has reached record levels.

And unlike other market segments, the wealth of the over-50s is booming. One in four pensioners in Britain is now a millionaire thanks to soaring property and pension values, according to government data.

These are the sort of market advantages many companies can only dream of. So, where did Saga go wrong?

Most of the group’s problems stem from its insurance business. The UK home and car insurance markets are well developed and highly competitive. Yes, Saga has an edge over some of the market, but it is working against big, strong competitors. Insurance can also be a tricky business if companies don’t get their sums right, and this is where Saga has tripped up in the past.

Still, management has been working hard to get the insurance arm back onto a stable footing and these efforts are paying off. Policy margins have stabilised, new products are performing well and recurring revenue is growing (which is good news, as this has a far lower cost for customer acquisitions).

Thanks to all of these initiatives, management is projecting a long-term combined ratio for the group of 97% (a ratio below 100% indicates an underwriting profit). Any insurance company that can sustainably earn a combined ratio of less than 100% on a repeat basis is doing something right.

For example, according to consultancy EY, the overall UK car insurance market could see a combined ratio of as much as 113.8% this year and 111.1% in 2023 due to higher costs and stagnant premiums.

Cruising back into profit

As the insurance business gets back on its feet, the holiday and cruise business is also showing signs of strength. While there’s still some disruption across these two divisions, Saga is projecting an ocean cruise load factor of 67% for the first half of 2022.

It is also now forecasting a load factor of 83% for the second half and 75% for the full-year. With a daily rate of £319 from paying customers, compared to just under £300 last year, the business is clearly making headway.

The holidays business (comprising Titan Travel and Saga Holidays) is also improving in line with the rest of the global travel industry, although management still expects a loss for the year.

Nonetheless, the latest trading update clearly shows that Saga is putting the pandemic behind it and planning for future growth.

The company could face growing pains in the future

That said, despite its improving outlook, I’d be wary of rushing headlong into this stock.

Saga has plenty of attractive qualities, but as I’ve pointed out above, its main profit centre today is insurance, and this is a tough industry. The organisation is going to have its work cut out to keep on top of the sector and achieve further growth.

Indeed, management is already expecting the profit margin on each insurance policy to fall in the next financial year, costing £20m to £21m in annual profits. The travel business will have to pick up the slack here.

Based on its own projections and Refinitiv analyst earnings estimates for the current fiscal year, the Saga share price is selling at a forward price/earnings (p/e) ratio of 6.5 falling to 3.8 next year. That looks cheap on the face of it, but there’s a huge amount of uncertainty here. I think it’s unlikely the market will re-rate the stock to a higher multiple until the group is firmly back in the black.

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Rupert Hargreaves

Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. 

His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks. 


Rupert has freelanced as a financial journalist for 10 years, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them. 

He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service. 

He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.