Over the past month, the Saga (LSE: SAGA) share price has been trending up. But to put that move in perspective, the stock’s level near 98p is still just over 60% down from where it was a year ago.
The plunge has been relentless. And the economic and geopolitical events of the past few years have hit operations hard. Just listing the divisions of the business shines a light on why that might have been. Indeed, the company deals in ocean & river cruises, travel, insurance and personal finance — all sectors that are vulnerable to the effects of external shocks.
Back into underlying profit
But we’ve had some encouraging news. At the end of September, Saga released its half-year report covering the six months to 31 July. And the headline trumpeted: “Saga returns to underlying profit as cruise and travel growth begins.”
The business produced an underlying profit before tax of £14m in the period. And that beats the underlying loss of £2.8m a year earlier. So, it seems the business may be showing clear signs of recovery. But there’s still a long way to go before the company returns to former glories.
Chief executive Euan Sutherland said the financial performance occurred as the business resumed “more normal cruise and travel operations.” The ocean cruise business has secured strong bookings since the pandemic, he said. However, the UK insurance market is “challenging”.
Nevertheless, Sutherland is optimistic. Looking ahead, he’s “confident” Saga is in a stronger position than before the pandemic. And even though the external environment remains challenging, the directors are “determined” to grow the business. They want Saga to become “the largest and fastest-growing commercial network for older people in the UK.”
It’s a lofty ambition, but it may be achievable. And I’m optimistic the current depressed state of the business and share price may be providing a decent entry point into the stock.
Early days of a turnaround
One of the first considerations of any potential turnaround investment is whether the business has survived its downturn. Indeed, some businesses never recover from their troubles. And it’s not uncommon for their shares to go to zero. But Saga is still with us. And it’s survived long enough to see an uptick in underlying profits.
One concern is the weight of debt on the balance sheet. But cruise ship assets back up the invested money. And Saga’s ongoing insurance operations helped it survive the deepest depths of the pandemic when everything travel-related was shut down.
In recent progress, net debt reduced to just over £721m in the period. And that’s almost £8m lower than on 31 January 2022. So, some of the firm’s financial figures have been moving in the right direction. However, this turnaround is in its early days. And the road ahead may not be straightforward for shareholders. Indeed, it’s still possible for me to lose money on the shares.
Nevertheless, the forward-looking earnings multiple is just below four for the trading year to January 2024. And if I had spare cash, I’d be tempted to embrace the risks and buy a few Saga shares now to hold long term.
