4th Apr 2023 15:03
(Alliance News) - Shares in Saga PLC plunged on Tuesday as the over-50s travel operator suffered a widened annual loss due to an impairment charge on its insurance business.
The stock was down 12% at 120.28 pence on Tuesday afternoon in London. Over the past 12-months, Saga shares are down 49%.
"During the pandemic, Saga was hit hard during lockdowns when travel and cruises ground to a halt. Offsetting this was a sharp drop in insurance claims when fewer cars were on the road. Post Covid, this dynamic has flipped with travel and cruises rebounding but insurance claims increasing," commented Victoria Scholar, head of investment at interactive investor.
The Kent-based firm said revenue in the financial year that ended January 31 grew by 54% to GBP581.1 million from GBP377.2 million the year before, due to increased trading in the Cruise and Travel businesses following the lifting of Covid travel restrictions.
In its Travel business, revenue was GBP108.4 million, up significantly from GBP10.5 million the year before, while revenue in Ocean Cruise climbed to GBP168.3 million from GBP82.5 million.
It swung to an underlying pretax profit of GBP21.5 million, from a loss of GBP6.7 million. This was primarily due to a GBP69.4 million reduction in Cruise and Travel losses, of which GBP47.0 million relates to the firm's Ocean Cruise business.
However, Saga's statutory pretax loss widened to GBP254.2 million from GBP23.5 million the year before, reflecting an impairment of insurance goodwill of GBP269.0 million.
Danni Hewson, head of financial analysis at AJ Bell, said "the longer the market had to look at Saga's results this morning, the less it liked about them."
"Yes, in theory the group returned to 'profit'. But this was an adjusted profit and on a statutory basis losses widened thanks to impairments on its insurance business," she explained.
"In theory Saga's proposition makes sense. The over-50s are a growing and relatively wealthy demographic who, if they own their homes outright, are less exposed to the recent increases in interest rates. However, Saga has never delivered on the promise which accompanied its market listing nine years ago. A series of operational failures have tripped the company up and damaged its credibility."
Hewson said that outsourcing the firm's insurance underwriting activities seems "logical" and may help the company free up capital but warned that this was not a silver bullet for the group's problems.
"Perhaps a larger third party might swoop in and see if it can successfully exploit what remains a strong brand," she suggested.
Looking ahead, the company said the progress made in the last year puts it in "good stead" as it enters financial 2023. It added that it remains focused on reducing its debt through the continued repayment of its ocean cruise ship debt and the GBP150 million bond on maturity in May 2024.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Saga