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The Saga share price is soaring. Have I missed the boat?

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A Saga cruise ship sits in port
Image: Saga

The Saga (LSE: SAGA) share price has been having a good run. Just yesterday the stock was up more than 4%. And since the beginning of the year, the shares have increased by over 91%.

So have I missed the boat? I don’t think so. The company has made a few recent announcements, which I think are positive for the Saga share price. While the firm is recovering from the coronavirus crisis, Covid-19 isn’t over. This means that revenue hasn’t reached pre-pandemic levels. When it does, it could boost the stock even further. 

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Financing transactions

As I mentioned, the Saga share price rose again yesterday. This was on the back of it announcing a series of financing transactions. Clearly, the market received this as positive news.

The reason for the financing was to improve the company’s “financial flexibility by increasing available liquidity, extending debt maturities and providing greater headroom against covenants”. In short, this means that Saga is giving itself more breathing space to carry on trading. 

So what are the details of the transactions? Well, it’s launching a £250m fixed rate guaranteed unsecured bond and a tender offer in respect of its existing bonds, with a target acceptance amount of up to £100m. The company is also expecting to repay its £70m term loan and amend the covenants of its existing credit facilities.

The company is certainly doing a lot at once. But Saga has highlighted that all these “transactions are contingent on each other”. So if one doesn’t happen, then the others are likely to fall flat.

Trading update

This comes after the company released its trading update earlier this month. So far the travel business seems to be holding up. Tour bookings are now at 60% and 27% of revenue targets for financial years 2021/22 and 2022/23 respectively.

In terms of its insurance division, motor and home policy sales are 2% behind the prior year. Saga put this down to the competitive market, although the picture has improved since May. It now expects sales from this business to be broadly flat for the first half of the financial year.

My view

Saga has a strong brand and reputation in the over-50s market. This demographic typically has more money to spend, which should work well for the company.

But I do have a few concerns. Saga’s net debt position before the financing transactions was already high. So the launch of a new bond is only going to increase its liabilities. I guess this is manageable for now, but if there are any further Covid-19 setbacks, it could become a bigger issue.

If government travel restrictions continue, Saga may need to raise further liquidity in addition to the financing transactions. This may not be received well by the market and could impact the Saga share price.

Despite these risks, I’m confident that that the travel industry will continue to recover. The vaccine rollout has been going well. And most of the over-50s have now had both jabs, which should work in Saga’s favour. Hence, I’d buy the shares.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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