Join our community of smart investors

Saga’s cruise arm set for smoother passage

Robust forward bookings reported for first half of new financial year
January 27, 2022
  • Strong recovery in earnings expected
  • Net debt continues to climb

Demand for cruises appears not to have been permanently dented by the Covid-19 pandemic.

Saga (SAGA), the travel and insurance group catering to the over 50s, said it is currently experiencing “strong” demand for cruise holidays, with the load factor on its vessels currently standing at 83 per cent for the first half of its new financial year, which begins on 1 February.

For the second half of its current year, the cruise business generated positive earnings on a load factor of 68 per cent, but ship depreciation and refinancing costs will mean the division is expected to record an underlying loss before tax of between £45m-£50m.

The insurance business is performing “in line” with expectations, with the number of home and motor policies sold by its retail broking arm up 1 per cent to 1.6m and margin per policy up by £1 to £75 year-on-year, the company said. However, pricing in the market has been volatile since the FCA’s ban on price walking was introduced in January.

Saga’s shares were trading 5 per cent higher at 295p. The consensus forecast for the company indicates a strong recovery in earnings of 44p per share next year, implying a forward PE of about 7x. This might look like a bargain but Saga still has restructuring work in to do in its travel arm and its debt pile continues to mount – by the end of last year net debt was £24m higher at £764m. The company still has some way to go before it reaches clear waters. Hold at 293p.

Last IC view: Hold, 352p, 22 Sep 2021