No one deserves a holiday more than Britain’s older people after 15 months of risk and anxiety over Covid-19 and separation from friends and family. Bookings for Saga’s cruises and tours bear this out. Cruises are 77 per cent-booked for this year and 48 per cent for 2022-23, while tour bookings are at 60 per cent of the company’s revenue targets for 2021-22.
Despite the delay in the government’s easing of lockdown restrictions this week, Saga’s travel business, which lost 90 per cent of its revenues in the year to the end of January, will restart on June 27. Spirit of Adventure, its new cruise ship, will set sail for the first time on July 26 around the UK and European cruises are planned from August.
Saga, which sells insurance and travel for the over-50s, makes the bulk of its profit from the insurance division and that business has fared far better over the pandemic. Sales of motor and home insurance are expected to be flat in the first half of this financial year, there have been fewer car insurance claims while people have travelled less and more customers are choosing the company’s three-year fixed-price policies. Saga is both an insurance broker and underwriter.
Based on this, the growing number of comfortably off people aged over 50 — by 2030, one in five people in Britain will be over 65, according to Age UK — plus high levels of double vaccination among people in its customer age range, Saga looks well placed to benefit as pandemic restrictions are phased out.
However, as shareholders who bought into the company’s 2014 float know very well, Saga has troubles that long pre-date Covid-19.
Saga was founded by Sidney De Haan in 1951 to sell holidays to retired people. His son Sir Roger took over in the 1980s with his brother Peter and sold the company to Charterhouse, the private equity firm, in a £1.35 billion deal in 2004. Three years later, Saga was merged with the AA, owned by CVC and Permira, to create Acromas in a £6.2 billion deal. That group was broken up in 2014 and Saga was floated to raise £550 million. High debts from the private equity years persisted and the shares struggled. Euan Sutherland took over as chief executive in January 2020 to put in place a plan to address the debt, simplify Saga’s structure and improve its services. In September last year, the company carried out a £150 million fundraising to shore up its finances. Sir Roger De Haan backed that and returned to the company as chairman.
The twists and turns didn’t end there. Saga went ahead with the equity-raising after rejecting a takeover bid valuing the company at £370 million from a former boss of Aviva and two American private equity firms. In October 2020, Saga carried out a 15-for-1 consolidation of its shares, which had fallen to around 15p the previous month.
Saga’s net debt is down to £246 million from £411 million halfway through last year, according to this week’s trading update, and in March the company said that it had secured amendments to its debt covenants that would give it enough flexibility to cover further travel suspensions. Lenders also agreed to a one-year extension of its cruise ship loan facility. Including the two cruise ships, Saga’s total debt was £757 million as of the end of May. There is no dividend while it concentrates on reducing its debts.
The shares rose 8½p, or 2.1 per cent, to 408½p. They have climbed 61 per cent this year and by 35 per cent since Tempus last rated them a “hold” in February. Given the pent-up demand for holidays and the steady insurance business, shareholders who have hung on this far may enjoy further gains.
ADVICE Hold
WHY Turnaround plan is being put into action and patient long-term shareholders may as well wait and see
Alphawave IP
Alphawave IP’s life as a listed company didn’t get off to a buoyant start. Shares in the computer chip technology company fell by more than 20 per cent at one point during its first day of trading last month, before closing down at 370p, about 10 per cent off their initial public offering price of 410p.
The debut on May 13 coincided with a global sell-off in equities, prompted by concerns over rising inflation, and technology stocks didn’t escape. However, the shares continued to slide for the following two weeks and the company hasn’t yet recovered its opening valuation of £3.1 billion.
Despite this disappointing start, there are lots of positives about Alphawave. The first is its market. The company, set up in Canada in 2017, doesn’t make computer chips, but designs the technology inside them and licenses that to manufacturers, receiving royalties when chips using its designs are sold. As an intellectual property company, it is in the same business as Arm Holdings and Imagination Technologies, two British success stories now under foreign ownership.
Alphawave’s expertise is in digital signal processing chips, used to transmit data rapidly over wired networks, for example those that connect servers and storage devices in the data centres that make cloud computing possible. Its technology is used, too, in artificial intelligence chips and in 5G infrastructure.
A second positive is its present trading. On Monday, Alphawave reported $190 million of bookings so far this year, it’s strongest first half to date, winning business from a “hyperscale” cloud provider and 5G and communications equipment makers in North America.
The third positive is its investment in Britain. After its London listing, Alphawave plans to move its headquarters to Cambridge and the so-called Silicon Fen technology cluster and to hire 100 people.
The shares fell 11½p, 3.5 per cent, to 316½p, giving Alphawave a market cap of about £2.1 billion. It is still a tiddler in comparison with the technology giants it supplies, but it looks well placed for growth, as faster data transmission becomes ever more important to all industries.
ADVICE Buy
WHY Demand for faster data transmission is here to stay
