Saga has come a long way from the days when it had one hotel and was known as the Old Persons’ Holiday Bureau. It has reinvented itself several times as it dances around the theme of tapping the capacious pockets of the affluent over-50s, currently an ocean and river cruise operator with insurance broking and underwriting, and broader financial services tacked on.
Yesterday it announced a 15 per cent revenue rise to £355.3 million for the half year to end-July, with a 4 per cent fall in underlying half-year pre-tax profit to £8 million. That turned into a £77.8 million statutory pre-tax loss after writing down the value of its insurance business. The impact of the new accounting standard, IFRS 17, added £11.1 million to the loss, compared with £4.3 million this time last year. Insurance underwriting is to be sold.
Saga’s biggest headache is net debt, narrower by 9 per cent on a year ago, but at £657 million still 3.7 times market capitalisation. In an eccentric throwback to Saga’s origins, part of the chosen solution is to increase a loan facility from Sir Roger De Haan, non-executive chairman and son of Saga’s founder, from £35 million to £85 million at 10 per cent annual interest plus 6 per cent fees. That is to be drawn on as a working capital cushion, separate from a £150 million bond repayment due next May that should be serviceable from cash flow.
Euan Sutherland, the chief executive, pointed to debt reduction and the continued growth of the cruise and general travel agency businesses as positives. With Covid receding, 40 per cent of the ocean cruise customers were first-timers in the half year, along with more than half of river cruisers. The challenge is to turn them into repeat business.
The otherwise illogical collection of operations makes sense only if the group can cross-sell punters from finance to holidays and vice-versa. Surprisingly, equity-release loans are only now being joined by “later life” mortgages, Isas, pensions and retirement planning. Saga has also launched five-star, private jet holidays, £29,000 for three weeks in Europe, £49,000 round the world. It plans to capitalise on its travel offer by advertising in Australia. If that works, the reach will be extended to the US, Canada and Mexico.
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Sutherland and his finance director were joined at yesterday’s presentation by Michael O’Donohue, Saga’s chief data officer. They have cottoned on to the value in email addresses and behaviour patterns, as well as what else its audience might be tempted into. The group’s followers spend an average £584 a year, and O’Donohue wants to get that over £600. Padel tennis, anyone?
Sutherland said: “We are keeping tight control of costs and are confident that we will deliver significant double-digit growth in revenue and underlying profit, ahead of market estimates.”
But it is hard to escape the feeling that Saga will not reach its full potential as an over-50s lifestyle provider until it shakes off the founder’s legacy thinking.
The shares fell 4.9 per cent to 116½p, amid claims that the company is still struggling to return to pre-pandemic levels. There are many bruised customer-investors, given the share price has shed 95 per cent since it was floated for a second time in 2014.
When this column last examined Saga in 2021 it advised caution, saying “recovery may take a couple of years to reach the bottom line”.
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Nick Johnson at Numis says: “The outlook for profit and cash flow are better than expectations, which should strengthen market confidence in the deleveraging trajectory and medium-term profit growth potential.” He sees underlying pre-tax profit more than doubling to £55 million by January 2025, taking the price-earnings ratio down to 3.5.
ADVICE Buy
WHY The decks are being cleared, and positives are outweighing negatives
Pearson
The market in the educational publisher Pearson’s shares has been in turmoil lately, since the chief executive Andy Bird unexpectedly quit. Bird’s departure was announced simultaneously with the arrival of his successor, Omar Abbosh from Microsoft and, before that, Accenture. The question for investors is where the company goes from here.
When Bird arrived from Walt Disney he drew on the Disney+ streaming service to unveil Pearson+, which for $9.99 (£8.20) a month offers students more than 1,500 e-textbooks with audio, flashcards, notes and videos.
Pearson’s strategy has been to home in on digital-format education, using the Assessment and Qualifications division to recruit customers. That division runs tests and exams for nurses and transport workers in the US, as well as organising GCSEs in computer science and English language and literature for foreign students. In the first half of 2023 this division accounted for £796 million sales out of a £1.8 billion total. It also contributed £174 million to the group’s £250 million adjusted operating profit. That was up from £160 million the year before, on sales only 5 per cent higher.
In the US there was a continuing decline in higher education enrolments, although Pearson+ grew to 4.7 million registered users and 938,000 paid subscriptions. It sold the lossmaking Pearson Online Learning Services.
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Into this mix steps Abbosh, who co-authored Pivot to the Future, a book on digital disruption, and runs two podcast series with the rapper will.i.am. He has been running Microsoft’s Industry Solutions business, driving sales, service and solutions across its largest global customers. However, this is his first group chief executive post, in a new country at that, and he will have to reckon with a company culture that may resist vigorous change.
Goldman Sachs sees Pearson overcoming flat revenues to grow earnings per share from last year’s 51.75p to 69.36p by end-2025, taking the price-earnings ratio from 15.5 to 12.7. The dividend yield is 2.7 per cent.
ADVICE Hold
WHY The shares are solid performers, but worth waiting until Abbosh gets to work
