AA remains in debt

Following a detailed business update in March, there were no real surprises in YY‘s (YY.) figures for the year ending January 31. As reported, trading cash profit rose 3% to £350m, partly due to a £3m increase in new accounting standards, but also due to improved roadside business, which represent more than 80% of the total.

Paid personal subscriptions returned to growth in the second half, helped by additional marketing and cross-selling from the insurance division. Better not get too excited, as the increase was only 0.2% year-over-year to 3.22 million. With customer retention stable at 80%, average revenue per member increased by 2% to £165 thanks to more monthly subscriptions with higher premium.

In insurance, the number of automobile and home insurance policies increased by 10% to reach 1.7 million. Investing in ‘insurer hosted pricing’ has enabled the group to secure more customers from price comparison websites. But spending to attract new business weighed on the trading profit margin which fell 3 percentage points to 39%.

Despite the Covid-19 pandemic, AA believes trading this year will be “only slightly lower” than last year. While performance in February and March was in line with its expectations, there was a significant drop in the total number of breakdowns in April as lockdown measures reduced the number of cars on the road. Sales of new members and retention rates have also declined. This was partially offset by lower third-party garage costs – AA typically uses external services during periods of high demand, which has previously weighed on margins.

Property broker Peel Hunt has revised its forecast down by more than a third, now expecting adjusted pre-tax profit of £74m and EPS of 9.3p for the year to date. as of 31 January 2021. This is up from £107m and 14.1p in 2020.

AA (AA.)
ORDER PRICE: 30p MARKET VALUE: £186m
TOUCH: 29.9-30.1p TOP OF 12 MONTHS: 74p LOW: 13p
DIVIDEND YIELD: 2.0% P/E RATIO: 2
NET ASSET VALUE: * NET DEBT: £2.6 billion
Year at January 31 Turnover (£m) Profit before tax (£m) Earnings per share (p) Dividend per share (p)
2016 935 9 -0.2 9.0
2017 933 100 12.2 9.3
2018 960 141 18.2 5.0
2019 979 53 6.9 2.0
2020 995 107 14.1 0.6**
% cash +2 +102 +104 -7
Ex div: n / A
Payment: n / A
*Negative equity **No dividend balance for 2020

Carol M. Barragan