AA (AA.) is deep in the hole. The automotive services group has been battling declining membership and high debt for some time now, and the road ahead is a long one. True, the percentage of short sellers has fallen from its high of 12.5 per cent in March, but at 8 per cent there are still plenty of investors betting on further declines in the share price.
So far, these speculative positions have been on the money. The shares dropped more than a tenth following the release of the half-year numbers. Both paid personal and business customers were down, 2 and 3 per cent, respectively, while higher breakdown numbers (due to the summer heatwave) led to an increase in third-party garaging costs.
Management is betting on an IT overhaul to change the group’s fortunes and has been investing heavily in developing digital products for members. This investment, combined with the cost of refinancing the group’s massive debt burden, has led management to predict free cash flow will fall short of expectations during the year. Investment in IT systems will increase capital expenditure until 2020, although the group expects to reduce leverage to three to four times adjusted cash profits and return to membership growth the following year
Analysts at Citi Research forecast adjusted pre-tax profit of £115.4m in 2019, giving EPS of 15.1p (from £164m and 21.8p in 2018).
| AA PLC (AA.) | ||||
| ORD PRICE: | 109p | MARKET VALUE: | £667m | |
| TOUCH: | 108.95-109.45p | 12-MONTH HIGH: | 179p | LOW: 70p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 9 | |
| NET ASSET VALUE: | * | NET DEBT: | £2.7bn | |
| Half-year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 471 | 80.0 | 10.5 | 3.60 |
| 2018 | 480 | 28.0 | 3.80 | 0.60 |
| % change | +2 | -65 | -64 | -83 |
| Ex-div: | 4 Oct | |||
| Payment: | 9 Nov | |||
| *Negative shareholders' funds | ||||
