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AA makes tentative progress

The roadside assistance and insurance provider is signalling a return to cash profit growth
August 8, 2019

Following a 13 per cent contraction last year, news that the AA (AA.) expects trading cash profit growth this financial year sent shares upwards by 5 per cent. After reporting free cash flow of £40m at the half year stage, the roadside assistance and insurance provider is expecting to reach its £80m target by year end, after excluding dividends and a £20m bond buy-back.

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Yet the motor services group also revealed that paid personal memberships contracted further to around 3.19m, although the rate of decline narrowed to 0.5 per cent, from 1.1 per cent at the same time last year. The group expects a largely flat membership base for the full year and is projecting a return to growth in 2021. 

Although average income per customer in the business-to-business segment rose by 5 per cent to £22, customer numbers dipped 8 per cent to around 9m. This follows the group’s decision not to renew its contract with French car manufacturer Groupe PSA.

While the insurance motor book put in a robust performance, home book expansion was a more sedate 1.3 per cent. Investment in new business volumes, combined with lower average commissions, triggered a 3 per cent reduction in average income per policy to £67.