At the moment (17 October), to get into the FTSE 250, a company needs to have a stock market valuation of at least £413m. One company that hopes to get there soon is Saga (LSE:SAGA), the over-50s travel and insurance specialist. If it could lift its share price by around 7%, a return to the UK’s second-tier of listed companies might be on the cards.
A long story
But the group’s share price has been volatile. Aside from the pandemic — when its cruise ship business was badly hit — a look back over the past 10 years shows two periods of significant decline.
The first was in December 2017, when the collapse of Monarch Airlines affected its travel business. Then in April 2019, it cut its dividend and announced a “fundamental change” to its strategy promising to return the business to its heritage and create an “organisation that offers differentiated products and services”.
Since then, the group’s share price has tanked over 80%, reflecting the fact that it’s now a much smaller business. During the year ended 31 January 2019 (FY19), it reported an underlying profit before tax (PBT) of £180.3m. For FY25, it was £47.8m.
But it’s the recent past that counts most. Since October 2024, the stock’s more than doubled in price. And if this momentum can continue, it should soon be back in the FTSE 250 for the first time since June 2019.
Right place, right time
And given that its target demographic is forecast to grow over the coming decades, I believe this is possible. At the moment, it’s estimated that 40% of the UK’s population is aged over 50. By 2065, this is expected to rise to 46%. Indeed, without realising it, age has crept up on me. I’m now one of the group’s target customers!
In my experience, older people are less price sensitive and remain loyal to a particular brand or company if they receive great customer service. And that’s how Saga seeks to differentiate itself.
But there are issues.
Highly geared
Although it’s been falling in recent years, the group still has relatively high borrowings. As of 31 January, its net debt was 4.7 times its adjusted EBITDA (earnings before interest, tax, depreciation and amortisation).
And the group last paid a dividend in November 2019, as it’s been prioritising reducing its debt.
I wouldn’t be surprised if Saga returned soon to the FTSE 250 following an absence of over five years. The recent trend in its share price suggests investors are beginning to warm to the company. Indeed, one person who appears to have great confidence in the business is its chairman. In September, Sir Roger De Haan purchased £3.29m of shares. He remains the group’s largest shareholder. But I don’t want to follow suit.
Saga appears to be a business of two halves. The load factor for its cruises is rising and it’s selling more holidays. However, the number of active insurance policies is falling. In FY25, underlying PBT in the group’s travel business increased by 59% from £40m to £63.6m. But it fell 58% — from £34.5m to £14.5m — in its insurance division. This makes me wary. And I remain concerned about its large debt burden. For these reasons, I won’t invest at the moment.
