The Motley Fool

The Saga share price has fallen 9%. Here’s what I’d do right now

Image source: Getty Images.

Saga (LSE: SAGA) was enjoying a bit of a renaissance in the early days of September, gaining strongly after the announcement of a £150m capital raise plan. But barely more than a week later, the Saga share price plunged 9% on the back of interim results.

The over-50s holiday firm recorded a statutory pre-tax loss of £55.5m, which it said is “due to prudent £60m impairment of Travel goodwill, reflecting impact of COVID-19 on perceived travel industry risk“.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The company reported an underlying profit figure of £15.9m. But it also revealed an operating cash outflow of £23.2m, compared to an inflow of £24.9m for the same period last year.

Adjusted net debt (excluding cruise operations) rose only a little, to £410.7m from £397.9m. But the collapse in profit pushed Saga’s leverage up sharply. We’re looking at a net debt to trading EBITDA ratio of 3.6 times, up from 2.2 times.

Saga share price pressure

That level of debt is putting pressure on the Saga share price, for sure. But I’m not so concerned for several reasons. One is that the big drop in earnings is only a short-term thing caused by the pandemic – and we’re almost sure to see earnings recovering in the next few years.

Short-term survival is crucial, mind. And though that’s a high leverage multiple, it’s still well below the firm’s covenant level of 4.75 times. And finally, of course, there’s the prospect of all the cash being raised by the new equity issue.

As promised, the process kicked off on the same day, and aims to raise approximately £150m in gross proceeds. It will comprise placings of new Saga shares, plus an open offer. I’d still be wary over the chances of success, except for one thing. Former CEO Sir Roger De Haan, son of the founder, is investing up to £100m himself.

Confident return

The firm says that reflects “his belief in the underlying strength of the Saga brand and business and his confidence in the new strategy under the strengthened management team“. Whichever way you look at it, it appears Sir Roger wants back in again real bad.

Whether that commitment, or the optimism, will carry over to a resurgence of Saga’s business remains to be seen. After all, the company wasn’t exactly proving a roaring success for investors even before the devastating virus arrived. Over the past five years, the Saga share price is down more than 90%. And the 2020 pandemic crash looks almost insignificant compared to earlier slumps.

Positive outlook?

Still, saying that, I think there’s a more positive long-term outlook for Saga now than for years. And while it pays to be wary when an ex-boss wants to come back and help steer the ship once more, in this case I’m buoyed by the prospect of Sir Roger’s return.

It’s risky, but I think Saga is one of the more promising recovery candidates out there now. I’d buy.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Alan Oscroft 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.