AA growth impediments remain

However, growth impediments remained in force. Paid personal membership at its core roadside assistance business declined 1 per cent to 3.29m, as the free-to-paid insurance channel finished rolling-off. New member growth of 7 per cent failed to offset this, while the retention rate was flat at 82 per cent. Management says its StayAA retention programme resulted in a record 72 per cent renewal rate for those who called with the intention of cancelling their membership, while discounts offered averaged 22 per cent, compared with 35 per cent when it was launched in 2014. However, a reluctance to pass through costs associated with a higher insurance premium tax led to a 1 per cent decline in average income per customer. Meanwhile, greater use of expensive third-party garages during peak times also increased breakdown costs, which fed through to a 5 per cent decline in trading profits for the roadside assistance business to £345m.           

The picture was brighter for insurance, where revenue increased 11 per cent to £145m. Growth in motor policies offset a fall in home insurance, as competition continued to bite in the latter market. The insurance services business benefited from installing insurance hosted pricing (IHP) – where rates are held by the insurer as opposed to an intermediary-controlled software house – with five out of its 12 motor panel members, including its in-house underwriter. Management believes that better quality data helped the business underwrite more competitive quotes, while withdrawal from less profitable areas, such as wedding and pet insurance, also helped improve the average income per home and motor policy by 6 per cent. The in-house underwriter nearly doubled its motor policies to 223,000, while 184,000 home policies were underwritten in that business’s first year.

Analysts at Liberum forecast adjusted pre-tax profit of £113.8m for the 12 months to January 2019, giving EPS of 15.1p (from £164m and 21.8p in 2018).