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AA's debt still looms

The group's huge debt and an incoming FCA review cast a shadow over its trading update
February 12, 2020

AA’s (AA) update revealed some glimmers of hope for the roadside assistance group. Trading cash profits (Ebitda) were reported to be in ine with market expectations for the 12 months to 31 January, with Liberum forecasting a full-year total of £347m. Management commented that the “positive operational momentum in FY20 continues to gather pace and the Group remains on-track with its strategic plan.” The company did not give direct guidance for its financial year in 2021 but Citi believes it would have commented "if it were not comfortable with current consensus" of £364m Ebitda.

IC TIP: Sell at 45.66p

Paid roadside membership returned to growth in the second half of the year and the group expects it to continue into 2021 as per previous guidance. It has also either retained or extended all of its key business-to-business contracts, as well as signing with new clients Admiral and Uber. In its insurance business, both motor and home books grew.