Equity Research

The travel Saga

Saga, the UK over 50s travel and insurance specialist, is set to raise £150m in equity capital in order to combat the negative impacts of COVID-19. A turbulent year for the travel industry has seen Saga’s share price drop 75% since the start of 2020. Through the equity raise, Saga is bringing back Sir Roger De Haan, former chief executive and chairman, in order to shore up its Cruises business and package holidays. The new equity is intended to strengthen Saga’s financial position in a travel industry severely disrupted by COVID-19. The question is, can Saga recover?

Business overview

Saga is a UK specialist provider of products and services to people over the age of 50. The company is recognised for high quality products and exceptional standards of service. Having focused on travel in its first 30 years of establishment, Saga has since diversified its revenue streams to developing home and motor insurance and financial services in the 1980s, before expanding into private medical and pet insurance and the launch of its own cruise ship operation in the 1990s.

Capital raising


£150m of capital is to be raised in gross proceeds, with eventual net cash proceeds of £140m when accounting for the £10m transaction costs to advisors such as Greenhill & Co. Sir Roger De Haan is expected to invest up to £100m, acquiring approximately a 20% stake and replacing Patrick O’Sullivan as the company’s non-executive chairman. In total, the amount raised will almost be the equivalent of Saga’s market capitalisation, which has fell to £153m prior to the equity raise.

The rest of the capital is to be raised via existing shareholders through a Placing and Open offer. A Placing and Open offer is similar to a rights issue in that it gives all shareholders the right to participate in the equity raise. However, the key difference is that it offers no option to sell your entitlement in the market and therefore, existing shareholders have the binary choice between contributing or accepting greater dilution of their shareholding.


Like many others during the COVID-19 pandemic, the travel industry and Saga have been brutally impacted, with lockdown restrictions and government ‘no sail’ edicts wiping out Saga’s cash inflows in 2020. Consequently, debt reduction is the primary focus of this equity raise, with new funds set to reduce net debts of over £600m and shore up Saga’s liquidity. By strengthening the company’s balance sheet, the equity raise is expected to help Saga meet their short-term debt covenant thresholds. Other strategies, namely the disposal of non-core assets and the suspension of dividend payments, have also been implemented in order to achieve this objective.

Potential long-run growth

Targeting the older demographic in an ageing population should bear fruit in the long-run. The pursuit of more active lifestyles, particularly with older generations, means that 54% of the UK’s total expenditure on leisure, culture, food, and recreation now comes from the growing over 50s market segment. The core over 70s market is estimated to grow by 22% to 10.7 million by 2028, expanding Saga’s potential customer base.

With new management in place, Saga have set about changing their strategic direction, with a plan to invest in digital capabilities and strengthening an already recognised brand. The digital transformation of the company could reap significant rewards due to the plan for a single, group-wide customer digital data platform. This would allow for “synchronisation across Saga’s businesses” and create an automated personalisation model, providing prompts to make the best, tailored offer to each customer. The new strategy also involves driving cost efficiencies, with a reduction in Saga’s middle management from 17 layers to 5 in 2020.

Risks moving forward

The pandemic

The uncertainty surrounding the COVID-19 pandemic is, of course, the greatest threat to Saga’s immediate recovery. Should the UK’s current rise in cases escalate, the potential for a renewed suspension of the Group’s Cruise business or Tour Operations will increase. The uncertainty may also prompt insurance and travel regulators to heighten capital requirements for firms which, according to Saga’s interim financial reports, “could have material adverse effects on the Group’s operational and financial flexibility in future periods.” With the UK in its deepest recession since records began (see Courtney Ewart’s article), the allocation of discretionary income to income elastic luxuries, such as Saga’s package holidays, may exhibit a continued decline in the short-term.

Consumer confidence

Should the pandemic return to a more controlled environment in the UK, the international travel industry could still face persistently low levels of demand. This is particularly the case with the older demographic that Saga caters for. Whilst the Group’s target market is over 50s, its core customers are often over the age of 70 —74% of the Group’s Travel customers and 52% of the Group’s Insurance customers are over the age of 70. As the older demographic is more susceptible to the health risks posed by COVID-19, this would likely divert the discretionary spending of Saga’s core customers away from cruises and package holidays due to government ‘shielding’ guidelines and personal health concerns. I believe we are likely to see an extended, gradual return to pre-COVID demand in the travel industry, with a much greater emphasis on staycations and domestic travel as opposed to international holidays, at least in the short-term. Saga’s recovery is thus likely to depend on its ability to adapt its products and services and ultimately “listen to its 2.1 million customers” — a value at the heart of its business model and one which is likely to be tested in the coming months.


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