AA (AA.) is turning a corner. The motor services provider reversed the decline in paid personal members, after three years of investment in its digital platforms and marketing campaigns. Using the majority of the proceeds from the sale of its Irish business, management also paid down some of its huge debt pile. As a result, debt declined to 6.7 times cash profits by the end of January, compared with seven times in the previous year.
Importantly, net cash flow after dividends increased to £42m, from a loss of £136m in 2016. Executive chairman Bob McKenzie says the AA is moving into the final phase of its investment programme this year and will then ramp-up cash flow and deleveraging. Refinancing some of its junior debt meant the average cost of debt reduced to 4.63 per cent from 4.97 per cent a year earlier. This should save an annual £10m in borrowing costs.
New business was up 14 per cent across the group. Roadside assistance - which accounts for more than three-quarters of revenue - grew sales by 2.5 per cent to £742m. This was thanks to growth in average income from personal and business members. Paid personal membership increased marginally to 3.33m. This offset an increase in breakdowns during the period.
Motor insurance policies grew for the first time since 2008, benefiting from the 115,000 policies written by its in-house underwriter during its first year of business. However, running-off travel insurance business meant overall policies in force fell by 9 per cent to 1.88m. As a result, cash profits were 3 per cent lower at £76m. A lower number of participants on police speed awareness courses also meant revenue for the driving services business was down marginally. This was despite an increase in driving school instructors.
Analysts at Liberum expect adjusted pre-tax profits of £187m during the 12 months to 31 January 2018, giving EPS of 24.3p (from £167m and 21.3p in 2016).
AA (AA.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 268.7p | MARKET VALUE: | £1.64bn | |
| TOUCH: | 268.4-268.8p | 12-MONTH HIGH: | 309p | LOW: 210p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 22 | |
| NET ASSET VALUE: | * | NET DEBT: | £2.7bn | |
| Year to 31 Jan | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013** | 968 | 275 | na | na |
| 2014** | 974 | 193 | 32.7 | nil |
| 2015 | 984 | 61 | 13.3 | nil |
| 2016 | 935 | 9 | -0.2 | 9 |
| 2017 | 933 | 100 | 12.2 | 9.3 |
| % change | - | +1011 | - | +3 |
Ex-div: 11 May Payment: 13 Jun *Negative shareholders' funds **Pro forma EPS prior to flotation in Jun 2014 | ||||
