It makes sense to invest in a company benefiting from a long-term trend; if you can find one profiting from two, so much the better. Best of all is a company exploiting two structural shifts, in the midst of a turnaround, reasonably priced, and with an activist investor taking a large stake in it. Enter Saga, which makes its money from selling services to the over-50s, a fast-growing segment of the British population.
Until recently, the company was a mess, racking up enormous losses. This was partly due to Covid, which greatly reduced consumers' demand for its cruises and holidays. However, even before the pandemic, and for a few years afterwards, Saga grappled with major problems. It had spread itself too thin by becoming involved in too many businesses, with its insurance-underwriting arm in particular bleeding money. This strategic ineptitude, in turn, propelled debt to dangerously high levels.
Saga is gathering strength
However, recently Saga appears to have got its act together. It negotiated a partnership with Ageas, which last summer involved Saga selling off its underwriting arm to the Brussels-based insurer. This raised a large amount of cash, which Saga has used to pay down debt; the company has also restructured its loans so that they are not due until 2031.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
The sale also moved Saga away from the capital-intensive and difficult business of judging risk, reducing overall complexity in the business. This allowed it to focus on what it does best: the customer-facing part of the job, including selling Ageas' policies and managing complaints. At the same time, Saga has started to rebuild its travel business, a sector booming as people seek out experiences rather than goods. The group's river and ocean cruises have proved to be extremely popular, with a rising number of forward bookings providing a high degree of security for the business. The fact that only a tiny fraction of Saga's holidays involve trips to the Middle East and Mediterranean (and even those are to the relatively safe countries of Cyprus, Egypt and Turkey) means it should be unaffected by the ongoing global geopolitical tension.
Revenue jumped nearly 75% between 2021 and 2025 and continues to grow at a strong pace, with an 11% increase during the last quarter compared with the same period a year ago. Most importantly, Saga is expected to move into the black in the coming financial year. Yet its valuation seems very reasonable at 16.2 times 2027 earnings.
The share price also boasts impressive momentum, having more than tripled in the past year. It trades above both its 50-day and 200-day moving averages and continues to outperform the rest of the FTSE 250 over one, three and six months. I suggest you go long at the current price of 627p at £4 per 1p, putting the stop loss at 400p. This gives you a total downside of £908.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
