Saga (SAGA) has sought to reassure investors of its balance sheet strength and liquidity, after warning impacts on its cruise business would hit pre-tax profits by £10m to £15m this year.
At the end of February, the retirement products specialist said it had £33m of cash and a £100m unused revolving credit facility on its balance sheet. Its cash-generative insurance business has also started the year well and is not expected to be significantly impacted by the Covid-19 outbreak.
The picture is markedly different in Saga’s cruise division, which has suspended all sailings until May. The group made the decision following government guidelines advising against travel for people with pre-existing conditions or those aged 70 and over, and has promised full refunds or credit for future departures to all travellers.
Despite the high-profile quarantines of several major cruise ships in recent weeks, Saga said demand for its cruises has been “very positive”, and that bookings had already met 80 per cent of the group’s full year revenue target. Though cancellations had increased in recent weeks, the average load factor for the remaining five cruise departures scheduled for March was still 79 per cent, with 85 per cent of travellers still confirmed for travel in April.
News of the profits warning landed amid the latest wild gyrations in London equities, though Saga shares are down 71 per cent so far in 2020, capping a truly dreadful three-year run for a company which only listed in 2014. Investor fears will now centre on the group’s debt covenants, which require net borrowings to be no more than three times’ cash profits. That ratio could be threatened if the full £100m credit facility is used, analysts at Peel Hunt warned.
Saga does have some options to shore up liquidity, including “additional cost efficiencies and reducing discretionary spend”. A cash balance of £37m is also due from the recent sales of motorbike insurance broker Bennetts and care agencies Patricia Whites and Country Cousins.
Assuming a six month disruption to the cruise business, Peel Hunt has cut its cash profit forecast for the year by £55m, and now expects adjusted earnings of 8p per share in 2020, and 3.9p in 2021.
