Investors opening their apps and financial websites on 13 October may have been more than a little shocked to see the Saga share price. Shares in the British insurance, travel, and financial services company apparently rose by an incredible 1,300% overnight.
Was this the fastest turnaround story of the decade or was something else going on here?
The Saga continues
For a storied and trusted brand focused on the over-50s, the falling Saga share price has been quite the embarrassment.
The company went public in 2014 in what was described as a ‘lacklustre’ IPO that revealed substantial structural issues. Since then the company issued multiple profit warnings and removed its medium-term earnings growth guidance. Falling revenues, widening costs, growing debt, and a series of strategic errors hit the Saga share price hard.
Then, the company diversified into ocean cruises at the worst possible time: just before a global pandemic that crippled the sector. From nearly a billion pounds in sales in 2015, Saga crumbled 17% to £797.3m in its last full-year results. Declining sales saw the group swing from a £193m profit in 2018 to an annual loss of £123.2m in 2019. These losses more than doubled in the 2020 full-year results, to £279.2m.
Something had to be done to stem the bleeding.
Saga share price soars?
So did we really see a 1,300% price rise overnight? Well, no, actually.
The Saga share price appeared to rise dramatically because of something called ‘share consolidation’. This is a technical term for how a company organises its shares on the stock market. The company took the 2bn+ shares it had in issue, and replaced them with 139m ‘consolidated’ shares. So 15 times fewer shares.
This is the continuation of a course-correction that started in September 2020, when the company announced yet another change of management and strategy. Saga managed to scrape together £150m to boost its balance sheet and shore up its financial position. £100m of that total rescue package was provided by ex-CEO Roger De Haan.
Saga like Tesla?
A share consolidation is the opposite of a stock split, where a company deliberately increases the number of shares it has in issue to bring the per-share price down. The most famous recent example of a stock split was by Elon Musk’s Tesla. In August, the electric carmaker split its shares 5-for-1 in an effort to make it easier for everyday investors to buy them. This move gave every Tesla shareholder four extra shares for every one they already held. And effectively it reduced by five times the price new investors had to pay per share.
Saga has done the opposite to Tesla. With this share consolidation or ‘reverse stock split’ it has dramatically reduced the number of shares it has in issue by 15 times. As a consequence, to the dumb computers that control most financial apps, the Saga share price appeared to have instantly grown 15 times larger.
Where next
Much as they would like it to be the case, Saga shareholders did not instantly become 15 times richer overnight. The company is still burning huge amounts of cash — between £6m and £8m every month, and won’t be able to start taking cruise passengers again until April next year. The new management team looks promising, but I am avoiding Saga until the fortune reversal it has promised starts to appear on its balance sheet.