Over the last four years, the Saga (LSE:SAGA) share price has behaved like a rollercoaster that’s ultimately falling. The over-50s travel and insurance business saw its share price continue to fall to a record low of around £1.20 last year from a high of £30+ four years ago.
What caused this 96% decline? And should I buy shares at today’s low price? Let’s take a look.
What caused the Saga share price to plummet?
Saga’s share price started falling near the end of 2017 after the firm declared a one-time marketing expense of £10m, dubbed as a “customer acquisition spend”.
At the time, increasing the marketing budget appeared odd. The Saga brand was already well known, and this additional cost would lower the following year’s profit by 5%.
This decision seems to have been the first indicator that something was wrong. And at the end of 2018, the problems started to reveal themselves. Both the insurance and over-50s travel segments of the business were losing customers. Fast. And when investors demanded an explanation, the management team admitted it had been “overly focused on the short term”.
The announcement of a £310m non-cash impairment charge only added fuel to the fire. The previously profitable business transformed into a money-loser. Dividends were cut in half, and the Saga share price continued to plummet.
After four years of terrible decisions, CEO Lance Batchelor was ousted from his position in January 2020. And just as the firm began to set itself back on course, the pandemic hit. With no passengers aboard its cruise ships, the company made a record loss of £313m in 2020. And so once again, the share price tumbled.
Saga’s rescuer
Towards the end of 2020, Saga looked like it could go under. With piles of debt building up and no income to cover the bills, the business needed to raise money quickly. With debt financing at capacity, it turned to investors to raise £150m through an equity offering.
But wait. What’s that coming over the hill? Is it a bird? Is it a plane? No, it’s a knighted Englishman with £100m!
Sir Roger De Haan, the previous owner of Saga 16 year ago, came in and bought a big chunk of the issued shares. He now owns approximately 20% of the business and sits as the board’s non-executive chairman for the next three years.
Will the Saga share price make a 2021 comeback?
The newly raised capital allowed the firm to restructure and bring its short-term debts under control. And the share price has climbed 120% since the rescue package arrived.
But the company has a long way to go. In my opinion, the recovery of the Saga share price is directly linked to the return of its cruise line operations. Fortunately, as I’ve previously discussed, the cruise industry has some of the highest customer loyalty levels of any sector. As such, 65% of Saga’s customers haven’t requested a refund, and intend to go on their trips as soon the ships set sail again.
If trips can resume in the second half of 2021, I think Saga will finally be back on course. And with new management at the helm, that makes it a business I’d consider adding to my portfolio.
