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There are hopes that new funding will shore up the balance sheet and support turnaround but the company still faces many headwinds
Thursday 03 Sep 2020 Author: Mark Gardner

Over-50s travel and insurance specialist Saga (SAGA) is set to raise £150 million in a bid to shore up its balance sheet, improve liquidity and help execute its turnaround plan.

Shares in the company have soared this week after the news, initially jumping 41% to around 19p, as it was also revealed that former owner and chief executive Roger De Haan will stump up £100 million of the cash, including £60.6 million at 27p per share, representing a 98% premium to the shares’ closing price on 28 August.

Saga will give existing shareholders a chance to participate in raising the other £50 million, for which the issue price would be a maximum of 15p per share.

The involvement of De Haan, son of Saga founder Sidney De Haan and former boss before selling the business in 2004, appears to have pleased the market with investors seemingly viewing him as a ‘white knight’ rescue figure for the embattled company.

However, the share price rally this week needs to be put in context of how the bombed-out shares have performed since Saga’s initial public offering (IPO) in May 2014, when the company’s shares closed at 185p on their first day of trading.

Since reaching a high of 225p in September 2016, Saga shares have been on a steady downward spiral, which accelerated first in December 2017 after it warned on profits for the following two years after troubles in its insurance division, followed by another big fall in April 2019 when it cut its dividend and changed the strategy for the insurance arm.

Saga has faced a number of headwinds in the past few years, particularly in insurance as a decline in reserve releases and insurance margins, renewal pricing changes, and investment in new products all hit its profitability.

Its cruises arm has also fared badly, even before the coronavirus pandemic, with travel and tour bookings weak following Brexit concerns.

Saga also invested heavily in new cruise ships, the timing of which couldn’t be worse now with the industry having ground to a halt amid the pandemic.

The £150 million fundraise, while clearly needed, won’t solve all of Saga’s problems or wipe away its debt, with net borrowings as at 30 January 2020 standing at £361.7 million.

But Saga says the cash will also help it execute its turnaround plan as well as improve its finances, as it looks to return to sustainable growth and try to provide ‘restoration of significant shareholder value’ for beleaguered investors.

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