The saga continues for the Saga (LSE:SAGA) share price. The over-50s travel and insurance company has had a rough journey these past couple of years. Due to mismanagement, the business found itself in poor financial health. And that was before Covid-19 even entered the picture.
However, after a prolonged period of decline since 2017, it seems the stock is finally on the road to recovery. In fact, over the last 12 months alone, the Saga share price has nearly doubled. But can this upward momentum continue and is it a buy for me? Let’s take a look.
Saga results
Last week, the firm released its interim report for 2021. And at first glance, it looks relatively mediocre. This could explain why the Saga share price didn’t really move much on the news. However, there are some continued signs of recovery.
Starting with the less-than-attractive numbers, revenue from its travel segment fell by just under 80% compared to a year ago. This isn’t too surprising given most of its ships have been parked in-harbour these last six months. But with cruise operations restarting on 27 June, I expect this revenue stream to improve drastically in the second half of 2021.
On the insurance side of things, performance has been more pleasant. The number of policies sold increased by 0.5% to 835,000. That’s obviously not a staggeringly impressive growth rate. However, considering Saga was shedding insurance customers not too long ago, it’s an encouraging sight. Even more so, given retention rates also continued to climb and now sit at 80.6%. Meanwhile, the profit margins per insurance customer also rose by 7%, from £71 in 2020 to £76 this year.
All of this progress combined has resulted in the new management team just scraping itself back into the black. Profits before taxes came in at £0.7m versus a £55.5m loss last year. That’s a significant improvement. But there remains a long road ahead for Saga and its share price.
The challenges yet to come
The capital and operational restructuring that Saga underwent has obviously improved the firm’s prospects. But one of the glaring issues with this business is its debt. As of the end of July this year, the total for outstanding loans was at £899m. That’s actually 30% higher than a year ago.
This surge in borrowing activity comes on the back of issuing a new £250m unsecured senior fixed-rate bond. The proceeds have been used to repay a £70m covenanted term loan and improve liquidity. In other words, management has given itself some breathing space on its short-term obligations. However, if revenues don’t start rising again, this new loan could amplify problems further down the line. And, in turn, adversely impact the Saga share price.
Final thoughts
These latest results were far from perfect. But a return to profitability along with a clear path of revenue recovery is encouraging, in my opinion. Personally, I think the Saga share price is capable of returning to its 2017 levels. But it’s not going to happen in 2021 as this will likely be a multi-year journey. I won’t be buying for now.
