It has been a really brutal few years for shareholders of Saga (LSE:SAGA), the supplier of package deal holidays, cruises, insurance coverage, and monetary providers focused on the over-50s market. The Saga share price has plummeted over 75% from its highs in 2016, leaving buyers nursing heavy losses. So what has gone so disastrously improper for this one-time market darling?

What occurred?

The agency has been buffeted by an ideal storm of adversarial components. Brexit uncertainty dented shopper confidence and journey demand, whereas elevated competitors in its core insurance coverage enterprise from upstart digital rivals took a toll. The pandemic then proved an enormous physique blow, with cruise ships impounded and journey bookings disappearing virtually in a single day.

Though journey has recovered as Covid fears have receded, the agency is now battling a wide range of financial components. These embrace the excessive price of residing, considerably squeezing its clients’ disposable incomes and elevating its personal prices.

The corporate’s newest annual outcomes summed up the wrestle. Revenues had been down 10% versus pre-pandemic at £754m, with a £113m loss. With losses mounting, administration was pressured to faucet shareholders for a whopping £195m in a deeply discounted rights difficulty to bolster its funds. Even after this money injection, the steadiness sheet stays leveraged with £770m in debt.

Indicators of optimism

So is there any gentle on the finish of the tunnel for long-suffering buyers? The corporate is taking steps to downsize, exiting some uneconomic tour working channels and decreasing headcount by 18% to avoid wasting £35m yearly. It sees progress alternatives in areas like personal medical insurance coverage and residential providers tailor-made to its core over-50s demographic. That is considerably reassuring, with inhabitants demographics suggesting this might be an actual increase space sooner or later.

Let’s check out the numbers, specifically the price-to-sales (P/S) ratio, because the firm is unprofitable. The ratio of 0.2 instances is way decrease than rivals within the sector, with a ratio of about 1.1 instances. There’s clearly quite a lot of negativity round this firm, however in some unspecified time in the future, the share price may begin to make sense to even probably the most sceptical investor.

Analysts typically forecast a return to profitability subsequent yr. The corporate itself forecasts very wholesome annual progress in earnings of fifty% over the approaching years. That is effectively above the typical of the sector at 12.3%, however estimates have proved wildly unreliable on the subject of the corporate. “Saga stays in turnaround mode however visibility is low“, one dealer cautioned. Even when earnings get better, the heavy debt load may imply any beneficial properties get captured by collectors moderately than fairness holders.

General

With the Saga share price buying and selling at only a quarter of its 2017 peaks, some contrarian worth buyers could also be tempted to take a bet on a turnaround. However the highway forward appears difficult. With intense competitors from youthful, digital-savvy rivals, financial challenges, and a precarious steadiness sheet, I’m not hopeful. Shareholders have endured a attempting odyssey — and their battered funding could sadly by no means regain its former glory days. I’ll be staying clear for now.