PauL Scott - Small Cap Value Report - end of long article26 Jan 2021 12:58
Customer deposits - remember that SAGA now ring-fences customer monies in a separate account. Unlike many other travel companies which use customer pre-payments to fund their operations. I imagine customers would find this very reassuring, in giving confidence to book early at SAGA. I think that’s a good example of where old-fashioned image & attitudes can be a positive thing.
Cruise bookings are 68% of capacity for 2021/22 (78% LY), and 28% for 2022/23 (6% LY) - given that the ships are currently mothballed, and nobody knows for sure when they can resume operations, those numbers strike me as remarkable. Clearly the customers want to get cruising again, which augurs well for the future, however long it takes, which doesn’t really matter because the insurance division covers the cash burn whilst we wait. An ideal business model really, in these uncertain times.
My opinion - that all sounds fine to me. My reason for investing is completely intact, namely;
Insurance division profit/cashflow is funding the travel division losses
Liquidity/debt looks fine, assuming covenants on ship loans waived/relaxed again (no reason to doubt this)
Strong pent-up demand for cruise ships in particular, evidence by good forward bookings
Should become highly profitable once travel resumes
Medium-term benefits from return of Sir Roger de Haan (founder's son & long-standing CEO), and restoring the business, culture & image back to the original, before private equity & poor management damaged the business
Longer-term - think about what could be done with a brand name this well-known, and catering for the segment of society that has most of the money & disposable income! Massive potential & brand value, I reckon. If they get it right, this could be a multibagger in my view.
My investing timescale on this one is 2-3 years. The opportunity is for a shorter term re-rating, as travel resumes. Then a longer-term re-rating from sorting out the fundamentals of the business. Time will tell, as always, nothing is guaranteed since the future is so inherently uncertain. Overall I see good risk:reward here, if you can cope with the share price volatility!
You can see from the long-term chart, that Saga was badly mismanaged under old management, destroying shareholder value. Then covid clobbered it again in the spring of 2020. Note also that the share count roughly doubled in the recent fundraising, so we need to adjust for that when looking at the upside. i.e. a recovery to 1500p would really be equivalent to 3000p on the chart. The chart has been adjusted for a 15:1 share consolidation, in case the numbers don't tie in with your recollection of the past.
https://app.stockopedia.com/content/small-cap-value-report-tue-26-jan-2021-saga-anp-749739?order=createdAt&sort=desc&mode=threaded
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