While many of its customers are ageing energetically, Saga (LSE: SAGA) has been looking increasingly over the hill.
The provider of services such as insurance that specialises in customers aged over 50, has seen sales collapse and made losses for four years on the trot. The Saga share price has fallen 40% in a year. Over five years, the picture looks even worse, with a 90% decline.
But has the company turned the corner, meaning it could now be a bargain for my portfolio?
Upbeat trading statement
Losing money for four years in a row is a red flag for me. I aim to invest in firms with a proven business model. Consecutive losses like this raises a concern in my mind that the Saga business model lacks robustness.
But the company issued an upbeat trading statement this morning, covering a period from August until this week. It expects revenue to show growth of 40-50% compared to the prior year period. It said it remains on track to report underlying profit before tax for the full year of £20m-£30m.
Strong recovery in its cruise and travel businesses are helping Saga to build its revenues again. Cruise revenue for the year is expected to double compared to last year.
The insurance business is looking less healthy though. Policy sales in the insurance broking division are declining. The underwriting business is grappling with double digit percentage claims inflation.
Unconvincing business model
On paper, I think Saga has brilliant potential as a business. Its focus on a particular demographic that often has specific, costly needs and money to spend on solutions for them could be very lucrative.
But the business has struggled to deliver on this potential. Net debt stood at £721m at the interim stage and is expected to end this month slightly higher than that. Discussions with lenders have improved Saga’s flexibility in managing its borrowings, but its balance sheet remains alarming to me for a lossmaking company with a market capitalisation of £222m.
The positive figure for underlying profit before tax may sound like good news. However, I prefer to focus on the reported profit not the underlying one. Last year, for example, an underlying pre-tax loss of £6.7m compared to a much larger reported pre-tax loss of £23.5m. The prior year saw an even more dramatic disparity, with an underlying profit before tax turning into a £61.2m pre-tax loss on a statutory basis.
More work to do
Saga is not out of the woods as a business despite surging sales revenues. Its core concept of focussing on the well-heeled older market for big ticket purchases like insurance policies and cruises remains appealing to me. In the past it was very profitable for the firm. Soaring sales could help that happen again, potentially boosting the Saga share price.
For now though, the company is heavily indebted and has a history of losing money in recent years. While demand for travel is recovering, it remains below pre-pandemic levels. Saga’s insurance business could see profits squeezed from a challenging market environment.
I am not convinced the Saga share price will turn out to be a bargain. I do not like its risk profile or debt pile and will not be adding the company to my portfolio.
The post Could soaring sales boost a sagging Saga share price? appeared first on The Motley Fool UK.
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
- 2 dirt-cheap shares I’ve bought to hold for years
- Is the bear case for Alphabet stock persuasive?
- Warren Buffett has $23bn invested in this stock. Should I buy it for my Stocks and Shares ISA?
- If I’d invested £1,000 in Tesco shares 5 years ago, here’s how much I’d have now
- Here’s how buying a few FTSE 100 shares could help me build wealth
C Ruane 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.