UK hedge fund Kernow says Saga’s share price could surge over 400%
A contrarian stock picker has said a U.K.travel, insurance and financial services company could see its share price rise more than 400% in five years. Saga plc , which targets the over-50s, is a “materially undervalued” business, according to Alyx Wood, co-founder and chief investment officer of Kernow Asset Management, who described the stock as “an investor’s dream.” Wood, whose firm focuses exclusively on U.K. equities, said Saga, which he values at about £2.2 billion ($2.9 billion), has a potential share price upside of 468% over the next five years. “Imagine there’s a stock that’s exposed to the best growth tailwind over the next decade, whose earnings quality is about to triple, and whose share price could rise over the coming years by over 400%,” Wood told attendees at the Sohn London investment conference in November. “We’re early on this, but that’s the whole point of this game,” he added, saying that the company comprises about 10% of Kernow’s portfolio. SAGA-GB YTD mountain Saga Plc. He said that, upon first glance, the London-listed company appears “a bit of hodgepodge,” with its business model spanning cruises, holidays, insurance and financial services. “But then it hit me. It’s a brand consumer business — Saga speaks the language of the plus-50 market,” he said. “It makes them feel special, gives them purpose, and it makes things convenient,” he said. Wood highlighted the increased spending power of this demographic — which he dubbed the “Silver Pound” — noting that that people living their “Saga years” will account for 60% of all U.K. consumer spending will be by 2030. He also said the company had made dramatic improvements “incredibly disciplined” management under CEO Mike Hazell. ‘A compelling brand’ It has reversed a number of “catastrophically bad strategic financial decisions” — which included the order of two cruise ships delivered in April 2020 at the start of the Covid-19 pandemic — and has reduced leverage from about 12 times to almost four times, Wood said. It also offloaded its insurance underwriting business to Ageas in January this year. “This means the unstable, high volatility, low return on equity business becomes a high return on equity, stable business — an investor’s dream,” Wood said. “Whichever way you cut the assumptions this is a materially undervalued business.” In September, Deutsche Bank analysts observed in a research note that Saga’s first half results beat estimates, saying the company had made “encouraging strategic progress on several fronts.” Its group EBITDA came in at £67.5 million, 12% ahead of Deutsche Bank’s £60 million forecast, with growth seen in ocean cruise, river cruise and holiday passenger traffic. “Overall, we view Saga as a strong leisure operator, combining a compelling brand with exposure to the fastest-growing demographic in the U.K., together underpinning structural growth prospects,” Deutsche analysts wrote.
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