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Why I plan to buy Saga shares

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Regular readers of my articles will know that I have been following Saga (LSE: SAGA) share closely in the last 14 months.

In the second half of last year, I became cautiously optimistic about the prospects for the company. The pandemic decimated its cruise ship business, but the 50-plus travel and finance specialist still had a high level of customer support and brand recognition.

I thought this support and brand recognition would help the business turn around as the economy began to reopen.

The first indications seemed to suggest that this is what happened. After nearly collapsing last year, the company reports growing demand for its cruises. In addition, after several years of restructuring, its financial center is also returning to growth.

And after seeing the company restructure and rebuild, I plan to buy Saga shares for my portfolio.

Restart

One of the reasons I did not rush to buy Saga shares despite the improving outlook for the company was the uncertain environment that prevailed throughout the coronavirus crisis. But according to its latest figures, it looks like the company is starting to move forward.

According to a business update released ahead of the group’s annual general meeting, the load factors for the company’s cruises are 77% for 2021/22 and 48% for 2022/23. It is above expectations. At the same time, the company’s cash burn rate has dropped considerably. As this has slowed down, the outlook for Saga shares has improved.

At the same time, the retention rates and profit margins of its insurance business are also proving to be better than expected.

Of course, there are still a lot of uncertainties surrounding the cruise industry, as the restart depends on government restrictions. However, it appears that policymakers are determined to reopen the economy in the coming weeks.

In addition to planning the reopening, management also strengthened the group’s balance sheet. Last week the company offered to raise £ 250million via a fixed rate unsecured bond. It will use part of the funds to repay existing loans and strengthen its overall balance sheet.

Saga actions offered

Considering all of the above, I think the 50+ travel and finance specialist might be ready to take off in the next few months. And if the business performs as expected, or even surpasses expectations, I think the group could see sales and profits increase over the next several years as it builds on the recovery.

However, the success of Saga is not guaranteed. As noted above, the cruise industry is still subject to government restrictions. In addition, insurance is a very competitive activity and the group will have to work hard to retain its customers. In the past, he has failed to do so, and the division has encountered problems as a result.

Even after taking these risks and challenges into account, I still believe that Saga’s actions have tremendous potential. This is why I plan to buy the stock for my portfolio as a long term growth game.

The post Why I plan to buy Saga shares first appeared on The Motley Fool UK.

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Rupert Hargreaves has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.

Motley Fool United Kingdom 2021

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