It’s been a crazy six weeks. Since hitting a low of 120p on 19 October, the Saga (LSE: SAGA) share price has risen by more than 100% to around 255p.
The cause of this surge isn’t a mystery. Vaccine news has sent many UK shares rocketing higher. But unlike some stocks, I think Saga’s share price still looks quite cheap. In this piece I’ll explain why this over-50s insurance and travel specialist has caught my eye recently.
Safe sailing with Saga
Saga’s insurance business makes most of its profits. But the group’s over-50s travel offering is one of the ways it’s able to differentiate itself with customers. At the heart of this are Saga’s two, modern cruise ships.
These nearly-new ships are smaller than average. They aim to provide a high-quality, boutique experience for passengers. This includes the latest technology for air conditioning and hygiene. I expect these to become hot topics for cruise ship operators following the pandemic.
Indeed, I think that Saga is probably ahead of the wider market here. The company recently became the first cruise operator to be awarded the Shield+ health assurance accreditation by Lloyd’s Register, the maritime safety experts.
This accreditation covers a wide range of measures Saga is taking to reduce the risk of infectious diseases like Covid-19 and norovirus spreading on board its ships.
I expect more cruise ship operators to follow. But I think Saga’s lead in this area should help to attract passengers for when cruise sailings restart in April. That could be good for the Saga share price.
Customer loyalty
Having said that, Saga may not need to worry about finding passengers. The company recently said that bookings for next year across its holiday business where ahead of the same point last year.
Admittedly, cruise bookings are lagging behind slightly compared to last year. However, Saga says this is due to a deliberate delay in marketing activity. Despite this, the firm says it has already secured more than 40% of the cruise revenue it’s targeting for next year.
Cruise ship passengers have a reputation for loyalty, with many becoming regular cruisers with the same brand. I feel that if Saga’s new ships live up to their promise, the firm should benefit from this customer loyalty.
Why I like the Saga share price
Analysts’ consensus forecasts suggest that Saga will return to profit next year. Based on the latest projections, the shares trade on a modest seven times forecast earnings.
I think there are some other reasons to like this stock too. Although Saga’s finances looked shaky earlier this year, the group has now secured £150m of new funding. This includes £100m contributed by Sir Roger De Haan, who is the son of the firm’s founder. Sir Roger is also Saga’s former chief executive and will now become its chairman.
I think it’s fair to assume that Sir Roger has a good understanding of Saga’s business and is confident it can be returned to growth. Although nothing is certain, I believe Saga’s current share price will look cheap in a few years’ time. I’d be happy to buy the shares for my portfolio.
