Will Saga shares meet resistance if Covid-19 restrictions are extended?

• Saga shares down 0.88% in the last 5 days
• 77% year-to-date price rise
• 77% capacity booked for 2021/22 summer cruises
• Monthly cash burn approximately £7m-9m
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Is the Saga share price starting to demonstrate bearish tendencies?

Since the turn of the New Year, the Saga share price has experienced almost one-way traffic upwards. From a baseline of 230p in early January, Saga shares reached highs of 419.80p on 8 June. However, despite this 77% year-to-date rise, there are signs that this short-term recovery may have peaked.

In the last five days, the Saga share price has fallen 1.12% (as of 10 am on 14 June), with significant resistance appearing in the 420p region. Despite the recent upturn in fortunes, it has been a dismal last five years for the cruise operator and insurer, losing 85.40% of its value during this period.

Does Saga have contingency plans in place for further delays?

With the current level of Covid-19 restrictions in the UK set to be extended by a further four weeks, this decision will hit Saga and the rest of the cruise industry hard. The cruise company had planned to resume cruises from 27 June.

Fortunately, the company has confirmed it has contingency plans to enact if the restrictions are extended by Prime Minister Boris Johnson on 14 June. These include operating with smaller guest capacities.

The operator has been inundated with demand for its 2021/22 summer cruises, with bookings at approximately 77% of available capacity - 48% of available capacity already booked for the 2022/23 summer season.

How do its insurance arm and balance sheet affect the view of Saga shares?

It has been a turbulent few years for Saga, with its original owner Sir Roger De Haan forced to bail out the business with a £100m share acquisition, giving him a 20% stake in Saga today. Since that bailout, and Saga’s 2019 share price crash – causing the company to lose half of its value – restructuring has been a necessity.

More than a third (36%) of staff have been made redundant, helping to reduce overall losses by almost 80%. Although travel bookings are up 20%, its insurance, vehicle, and home policy sales are due to be largely flat in H1 2021. Its fixed-price three-year policies account for more than two-fifths (43%) of sales of all Saga insurance products.

The other primary concern is the company’s dwindling cash reserves. As of 31 May 2021, Saga’s cash reserves totalled £78m. In addition, it holds approximately £823m of debt on its balance sheet. Although its loans do not need repaying imminently, if the company cannot return to profitable trading, it is possible that further finance will be required to service existing debts.

Despite this bleak outlook, Saga’s CEO Euan Sutherland believes the company is making ‘strong progress’ and meeting ‘all the pillars of [its] turnaround plan’.

‘In Travel, the resumption of sailing for both ships and restarting Tours remains the priority, whilst, in Insurance, we aim to deliver consistent performance,’ added Sutherland.

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