Saga PLC (LON:SAGA) shares were on the slide on Thursday as the group warned the coronavirus outbreak was increasing cancellations and suppressing demand across its cruise and tour businesses.
The seller of holidays and insurance to the over 50’s said in a trading update that forward passenger bookings for 2020/21 in its tour division were down around 20% on the prior year, with a more significant impact having been felt in recent weeks as the virus spread across multiple continents.
READ: Saga delays sale of tour operator unit amid coronavirus turmoil
For its cruises, Saga said it had seen “a higher level of cancellations for departures in the near-term and more generally a lower level of bookings for departures further out”, with its two most recent trips leaving port with load factors of 80%.
Looking ahead, the company said the impact of the outbreak on its full year earnings “cannot be predicted with any certainty at the current time”, but added that while it expected its travel business to suffer some effects from the outbreak its insurance business would be “largely unaffected” and reiterated its profit expectations for the year.
Sale of care businesses
Saga also announced that it had sold its introductory care agencies, Patricia Whites and Country Cousins, for an enterprise value of £14mln to Limerston Capital as part of a strategy to reduce its leverage and simplify its business by disposing of non-core assets.
The company intends to use the cash from the sale and other disposals to further reduce its short-term bank debt.
Broker downgrades to ‘hold’
In a note, analysts at Peel Hunt downgraded Saga to ‘hold’ from ‘buy’ and cut their target price to 50p from 110p, saying they believed the group’s cash flow was “likely to come under pressure” due to tour and cruise cancellations relating to the coronavirus.
“We believe Saga is running out of options as the outlook for the travel business becomes more uncertain. It is likely that tour holiday and cruise EBITDA will come under pressure as holidays are cancelled or rebooked”, the broker said.
Peel Hunt added that the company may “now be tempted to take some bolder actions before its options run out”, including selling off its insurance business or, more drastically, selling some of its cruise ships to make up the cash shortfall.
“The clearest solution is to sell the insurance underwriter (AICL) and keep the cash generative broker. As we outlined previously, £80-100mln of insurance sale proceeds reduces leverage and supports a potential cash call from travel”, they said.
The company has already seen the coronavirus impact its ability to sell off assets after it delayed the sale of its tour operator Titan Travel, which was estimated to have a value of £100mln and interest from multiple private equity firms.
Saga’s woes drove the shares 8.5% lower to 22.6p in early trading.