Saga PLC (LON:SAGA) is holding fire on payment of its final dividend and is agreeing new borrowing terms with banks as the over-50s specialist’s travel business has been rocked by the coronavirus pandemic.
Given its core market is particularly vulnerable, cruise and tour operations have been suspended since the middle of last month and the group has been told by its shipbuilder that delivery of the Spirit of Adventure cruise ship may be delayed.
Running the numbers on the possibility that both parts of the travel business likely to be shuttered until August or September, management reckon that even with a slow recovery in demand it would expect to remain in a strong position thanks to its cash-generative insurance business, which remains “largely unaffected”.
READ: Saga predicts £15mln hit as it suspends cruises amid coronavirus pandemic
Saga, which dropped out of the FTSE 250 last summer, said it has “strong liquidity”, with £92mln available cash, boosted by expected £23mln in cash proceeds to be received from a disposal in February and £50mln undrawn from a borrowing facility.
As well as shelving the dividend, costs are being cut by £15mln, though this is being offset by an expected £10mln of redundancy costs in the current year.
Amendments to its banking covenants will see the covenant applying to the ratio of net debt to underlying profits (EBITDA excluding cruises) increasing to 4.75 times from 3.5 times for the period from 30 July 2020 to 30 April 2021, and to 4.25 times at 30 July 2021.
For the year to 31 January, Saga said it made underlying profit before tax of around £110mln, in line with the target range of £105-120mln, while debt stood at £109mln.
There was a goodwill impairment of £370mln in insurance, driven by a higher discount rate due to share price weakness and not directly related to Covid-19.
Saga shares fell another 4% to 16.84p on Thursday morning, where they are down more than two thirds so far this year and 84% lower over 12 months.
Analysts at UBS said suspending the dividend would save around £45mln per year and that the move was one of the “sensible pre-emptive actions taken across the group”, which they expected to lead to a positive market reaction in the context of a heavily discounted valuation.
Although acknowledging this is not the main focus today, UBS said the preliminary profit numbers are better than consensus forecasts, with underlying profit before tax of £57.1mln 12% ahead of consensus, insurance margins at the top of the target range and 320,000 fixed-price insurance products sold last year, 57% of new business, since up to 400,000 by the end of March.
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