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

The Saga share price is down 90% in five years, never mind the 2020 Covid-19 crash. Here’s why I think it’s time to buy the shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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“.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing For Beginners

It’s down 50%. Would it be madness for me to buy this value stock?

Jon Smith notes down a household value stock in the FTSE 250 that he thinks can rally in the long…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 70% and 80%! I’m thrilled I bought these two red-hot UK stocks exactly 1 year ago

Harvey Jones bought two UK stocks at the end of November last year, and both have smashed the market in…

Read more »

Investing Articles

These FTSE 100 shares could soar over the next year

FTSE 100 shares show strong potential as rate cuts loom. History shows stocks could gain more than 70% in the…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

“If I’d put £5,000 into Santander shares just 2 years ago, here’s what I’d have now”

Our writer considers whether he thinks Santander shares still look good value after a strong period for the global Spanish…

Read more »

Illustration of flames over a black background
Investing Articles

Could this FTSE 250 stock be the next Rolls-Royce?

With an ongoing probe into the motor finance industry, the share price of this member of the FTSE 250 has…

Read more »

Investing Articles

My 3 favourite FTSE dividend stocks give me a mind-blowing 9.82% yield!

Harvey Jones is surprised to learn that he owns the three highest-yielding dividend stocks on the FTSE 100. So is…

Read more »

Investing Articles

Following strong 2024 results, this 6.1%-yielding FTSE 100 gem looks a bargain to me

With good 2024 results delivered, and a buyback and dividend increase announced, this high-yielding FTSE 100 heavyweight looks very cheap…

Read more »

Investing Articles

I’m not surprised the IAG share price is surging, it’s the top-rated UK stock

The IAG share price is up 57% since the start of the year, but remains undervalued. This bull run could…

Read more »