Looking at the Saga (LSE: SAGA) share price over the long term, doesn’t make for easy reading. Despite recent rises, the stock has suffered over the years and the pandemic has added to this.
Does this make the Saga share price a bargain and should I add it to my portfolio? Here’s what I’m looking out for.
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#1 – Over 50s could boost the Saga share price
Saga is a travel and insurance business that caters for the over-50s. This demographic is growing in the UK. This consumer segment is also typically the wealthiest.
I think Saga is onto a winner in this respect. Not only is its target market growing, but it also has cash to spend. The over-50s demographic is typically more brand-loyal as well.
In the travel segment, Saga operates worldwide tours and cruises. But these have been halted since March 2020 due to the travel restrictions associated with Covid-19. Yet so far, 65% of cancelled customers have decided to retain their travel bookings rather than request refunds.
That’s good news, but I should also highlight that the travel business is dependent on the government lifting restrictions, and we don’t know when that will happen. This means the Saga share price could be volatile until then (and afterwards too) as it works to make up for lost business.
#2 – Not all about travel
When it comes to the Saga share price, I’m not focusing solely on the travel business. According to Saga’s 2020 financials, 58% of revenue came from the travel business, but this isn’t the profitable segment. It’s the insurance business that’s growing and is the most profitable.
The company’s insurance business offers motor and home policies to the over-50s. In a recent trading statement, Saga reported that these policies are now growing for the first time in five years. While the pandemic continues to halt the travel business, I expect the insurance division to continue to expand.
#3 – Capital raising
Last year, Saga set about raising £150m to boost the balance sheet. Along came Sir Roger de Haan who invested £100m into the company for a 20% stake.
Who is he? Well, Sir Roger was the former CEO of Saga and the son of the company’s founder. For one investor to pile in with this amount of money, to me, highlights his confidence in the business and the recovery of the Saga share price. Sir Roger has also become the Non-Executive Chairman of the company.
#4 – New management
Out with the old and in with the new. I think the pandemic has wiped the slate clean for Saga. The former CEO was replaced with Euan Sutherland in January 2020. He’d previously been CEO of Superdry (and was ousted from its board there after a declining performance). Superdry may not have been a bright spot for him but he was more successful in his time at The Co-op Group. More recently, the head of Saga Insurance has stepped down due to personal reasons.
I don’t see changes at the top as negative though — new management offers Saga a chance for a fresh start.
What’s next for the Saga share price?
I think the stock’s recovery is linked to travel demand and depends on the lifting of Covid-19 restrictions. There are too many unknowns surrounding the pandemic. For now, I’ll be watching the share price closely.
