Could over-50s provider Saga (LSE:SAGA) be a good addition to my portfolio? Let’s take a look at the recent history of the Saga share price as well as other factors to help me make my decision.
The Saga share price activity
Saga focuses on providing products and services for the over-50s market. Its operations include package holidays and tours across the globe. It is often best known for its insurance products. These include motor, home, travel, pet, private medical, and life insurance. It also provides a host of different financial services products.
As I write, the Saga share price is trading for 316p. This time last year, shares were trading for 152p per share, which is an impressive 107% return. Despite this impressive 12-month period, the shares have been on a downward trajectory for some time. Prior to the market crash in February 2020, shares were trading for more than 600p per share. If I go back to February 2019 levels, shares were trading for over 1,800p per share.
So what caused the Saga share price to tumble? At the end of 2018, it emerged that customer numbers were dwindling and fast for the well-known brand. The announcement of a £310m non-cash impairment charge compounded things further. Debt began to pile up and there were real fears bankruptcy might be on the horizon.Â
On the road to recovery?
CEO Lance Batchelor left his position as Saga’s CEO in January 2020. A new management team were eager to right the wrongs of recent times but Covid-19 put paid to this as everything came to a halt. Saga recorded a record loss of £313m in 2020.
With the reopening of the economy, could Saga begin to recover and will the Saga share price rise? Well, last month’s announcement of interim results for 2021 showed glimpses of a potential recovery to me. The results covered a period for six months to 31 July 2021. Saga recorded a profit of £0.7m compared to losses of £55m in the same period last year. Cash flow increased substantially, which is a bonus too.
Saga’s new management decided that recovery required restructuring, which requires capital. In the longer term this could boost the Saga share price. Unfortunately, debt levels are higher than before as it borrowed more for this restructure and to keep the lights on and give it some breathing space. The second aspect is it needs revenue to come in to avoid further issues down the road. For example, with cruise ships opening up once more, it will hope to capitalise on pent-up demand and record some positive results and bring in some money to pay off the debt accrued.
Risks and verdict
Saga cannot afford further restrictions or lockdowns linked to the pandemic. This could see its performance affected badly like last year. If this were to happen, any recovery may not materialise. Linked to this, its debt level is concerning and is very high just now for my liking. It could take several years to pay this off.
Overall, I am not convinced of Saga’s recovery prospects right now. The recent Saga share price spike doesn’t offer me any confidence in its investment viability. Right now, I will avoid shares for my portfolio.