Shares in over-50s holiday and insurance specialist Saga (LSE: SAGA) fell off a cliff in April after the company reported a shock £134.6m pre-tax loss for the year to 31 January. And they’ve continued to slide even lower, now sitting on a near 60% fall over the past 12 months.
Edward Sheldon highlighted an interesting development a couple of weeks ago, pointing to share purchases by six of the company’s senior directors including CEO Lance Batchelor. It’s debatable whether following company director purchases is a winning strategy, but when I see so many of them putting their own money on the line at the same time, it does make me sit up and take note.
A couple of developments this week shed a bit of positive light too. Saga’s first ever purpose-built cruise ship, Spirit of Discovery, has been launched and is expected to go to sea in June. The first of two new ships (the other being Spirit of Adventure, due for delivery around this time next year), the British-registered Spirit of Discovery can accommodate up to 999 passengers and each ship is expected to contribute around £40m to EBITDA per year.
Saga has also been revamping its insurance business, with its new three-year fixed-price insurance product apparently getting “a positive reception with around half of our direct new business customers choosing the new offering.” The firm’s advertising campaign for the product has just been launched, as part of a strategy of “growing direct channels and rewarding customer loyalty.“
The dividend was slashed to a yield of just 3.7%, but the shares are now on a forward P/E of under nine. I’m starting to think that could be a bargain, but for now I’m going to sit back and watch.
On The Beach (LSE: OTB) offers a very different investment prospect. Rather than being an established company that’s going through a bad patch, it’s a relative newcomer that’s been through a typical growth stock cycle.
The online-focused company which, as its name suggests, specialised in putting people on beaches, saw its share price start to take off in 2017 as investors piled into the latest hot stock. But since a peak a year ago, the shares have shed 30% of their value.
The six months to March 2019 saw a 41% jump in revenue, resulting in a 14% rise in adjusted pre-tax profit and a 16% boost to earnings per share. The interim dividend was lifted 18%, though yields are still only around 1% in the company’s early growth phase.
We’re looking at forecast P/E multiples of 18 for this year, dropping to 15 in 2020, and that’s not a demanding valuation if the expected growth comes off.
On The Beach doesn’t run a capital-intensive business of operating flights and hotels and all the rest, but just finds the best offerings for users of its website. On the one hand, that’s good, as costs should be held down and margins could potentially be very attractive.
But I also see a risk there, as it strikes me as a relatively easy model to reproduce. I have to ask what unique selling point the firm has that protects it from potential competitors? At the moment, I’m not sure I see an answer to that.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended On The Beach. 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.