Saga buoyed by strong demand for cruises

There was always a concern that certain industries would be permanently hobbled by the pandemic – a kind of corporate long Covid. The cruise industry was one of the first high-profile victims of Covid-19, and there were concerns that travellers might be reluctant to return to sea if they thought they were boarding a floating Petri dish. Saga’s (SAGA) latest full-year figures suggest that these concerns may have been misplaced.

Saga’s ocean cruise division exceeded expectations, posting underlying profit before tax of £35.5mn, up from £0.7mn in the previous year, while the river cruise segment reported underlying profits of £3.0mn, compared with a loss of £5.1mn in 2022-23. Per diem rates were also on the rise, although that needs to be set against persistent inflationary pressures. Bookings for ocean cruises remain “exceptionally strong”, leading to a load factor of 78 per cent for 2024-25, a 4 percentage point increase over the prior year. That figure stood at 82 per cent in the year prior to the pandemic.

The travel division returned to profit for the first time since the pandemic, while revenue was 44 per cent ahead of the prior year. Elsewhere, the insurance broking/underwriting businesses were constrained by inflationary effects, leading to pressure on margins and operating ratios and an accompanying 53 per cent drop in underlying profit to £38.4mn.

Net debt has been pared back by 10 per cent and the steady improvement in cruise metrics is buoying operating cash flows, doubly important as it will help the group meet a £150mn bond repayment due in May 2024. The lowly forward rating of 3.8 times consensus earnings reflects the ongoing scale of the challenges faced by Saga, but shareholders will find some comfort in these figures. Hold.

Last IC view: Hold, 122p, 27 Sep 2023