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Saga tuned in to growth, says Deutsche Bank

Saga (SAGA) has turned its attention to growth and Deutsche Bank is impressed by its medium-term ambitions.

Analyst Nick Johnson retained his ‘buy’ recommendation and target price of 185p on the over-50s specialist insurer, which was trading down 3.4% at 131p on Friday morning. A tough period has seen the share price fall 43% over five years.

Full-year results to the end of January beat consensus even after guidance was set in January.

Underlying profit before tax of £47.8m beat consensus by 20%, growing 25% year-on-year, and was ‘supported by growth in the travel business due to strong demand’.

Debt was lower than expected and the group also had a good start to the 2025/26 financial year.

‘More importantly, the combination of strategic moves – selling the underwriting business, securing a partnership on home and motor, and refinancing actions – means the group has been able to turn the focus to growth, with new medium-term ambitions to grow underlying profit to at least £100m in five years, and reduce leverage to two times in the same period,’ Johnson said.

back of a *** packet calculations for this year:

travel profit +20m

cruise profit +10m

loss from expensive financing 23m

so continuing operations underlying profit of £37m + 20 + 10 - 23 = 45m

but exceptionals of £45m so around £0m including exceptionals

Watched the presentation and read the IC article.

1. The debt is still high but will unwind pretty quickly as long as demand holds up

2. Bit annoyed by the cost of the actual refinance (never mind the interest rate) of 20 to 25 million. Seems harsh

3. There is a comment from the CEO regarding brand and potential other revenue streams ... I think there could be announcements regarding this in the future.

However having said all this the travel side is growing very fast. Cant remember who said that this was low margin and should be mothballed, but I disagree with them. It is a very low capital way of bringing in nice fast growing profit. Saga is definitely a strong buy IMHO

In the FT today there is an article on Saga. Peel Hunt has said the reduction in debt for the last year ahead of their expectations. I would suspect there will be a broker upgrade from them in next few days ....

Hi Rogue,

Pretty much agree with you word for word. And I am for dividends once they meet their targets.

Of course in short term want to see it pass £2 AND hold it there ...

Looks like Mike has done the same as Roger yesterday ....

Can someone post the IC article?

Peel Hunt:

"long-term outlook is more positive than we have pencilled in, as the focus turns to the growth in the Travel business following the restructuring of the insurance business"

Note : Peel Hunt have been giving bad broker updates for this stock for last few years. I suspect they will upgrade the brokers forecast soon.

Nicely done bug.

these results are very good, I expected a profit hit from financing as did others.

Looking forward the PE ratio without the complications of paying off bonds and writedowns looks far too cheap ....

also pretty immune to Trump

Better than expected for last year. Good growth in travel as expected.

Yes there will be a profit dip but from a profit of £47 million on a market cap of £180 million.

But following year will be better. This has an extremely low PE.

Lets see how the market reacts ....

Rogue,

Peel Hunt got fired hence they give bad updates.

Deutsche/Numis are now the house broker.

This is my understanding

Rogue,

They are the house broker ....

Deutsche Bank raise the price target to 185p from 154p.

Hopefully makes a difference when market is panicing about tariffs ...

Roguemale,

Not sure we are an insurance company. I think we are more cruise and travel now and possibly brand. Certainly will be in a years tme

Just saw the new saga cruises advert on the sky news channel.

Saga travel on LBC. Looks like they have marketing money to burn???

Laughton,

I think you misunderstand. This has nothing to do with Ocean or river cruises. This is only to do with the travel business and in this case long haul escorted tours. The travel side looks like a growth area that they are pushing please see my comment below. This is very good news if you understand the business ...

Ppywgda,

This is certainly good news, but I know from adverts that I have heard on LBC etc that they are spending more on marketing in travel. So a 91% increase if applied across travel would be a hugew uplift in travel profits at least another £5m in the current year. This is from my previous post:

"we know that in 1 year the profit in travel has gone from £1.5m to at least £6m. This is on an increase in 9% passenger numbers and 15% revenue. This shows that growth in travel will have a significant effect on the bottom line. So investment here is good.

Now zccax77 point is low margin on relatively high revenue which is a fair point but also the profit is on a very capital light investment. So an ideal way to increase profit and revenue with very little extra capital employed ...."

So I agree the underlying profit is going to be between £50 and £60 miliion.

But 2 problems here are:

1. There is already a writeoff already mentioned regarding the insurance side of the business.

2. In this year the financial cost of the £250 million 5.5% bond (as the finance costs of bonds are not seen as a yearly cost?) is hidden but going forward the financial cost of this £250 million is arounf 11.5%. So even if we were as profitable this year as the year just gone does this mean the underlying profit would suddenly drop to £20 to £30 million.

However having said all this I see the profit from the ocean and river cruises increasing rapidly, travel increasing rapidly and some nice cash payments from the sale of the underwriters. So still a very good value share from this point of view.

the saga which review:

"what’s saga like?

saga proves you don’t have to pay a fortune for a first-rate cruise experience, with almost everything thrown in. transfers to the departure port are included for everyone on the uk mainland, with an unlimited luggage allowance to boot.

cabins (which all come with private balconies) were rated five stars along with the customer service and food and drink - with ****tails, speciality restaurants (from seafood to nepalese) and even 24-hour room service (plus gratuities) all included in the upfront price. only the paid-for shore excursions - beyond those offered for free - will cost you extra. as one happy customer put it: 'i felt safe and looked after from start to finish.’

should i book with saga?

our top-rated cruise line is hard to fault. a high-end experience without the hefty price tag, saga goes the extra nautical mile."

as a shareholder i would prefer to hear "a high-end experience with a reasonable price tag"

Zccax77,

Can't fault you on your points. will be difficult to get other cruise ships if others can get more revenue per passenger.

And definitely US customers do have more to spend. Still think Saga can increase its prices in their cruises as currently they are seen as such good value ... However agree that growing the cruise business is off the cards....