Berenberg turned negative on the AA plc (LON:AA.) on Monday, downgrading its rating to ‘sell’ from ‘hold’ because it believes short-term risks for the roadside services and insurance provider are greater than previously assumed, and thinks too that the company’s dividend will need to be cut.
The German bank also reduced its target price for the FTSE 250-listed firm to 100p from 170p, with the shares changing hands currently at 114.35p, down 3.6% on last Friday’s close.
READ: AA lifted by motor insurance as roadside struggles
In a note to clients, Berenberg’s analysts pointed out that they downgraded their rating for the AA to ‘hold’ from ‘buy’ in October last year because they felt consensus expectations for the company were too high, and that additional investments announced by the new CEO were likely to increase costs and worsen the group’s cash generation.
They added that, revisiting the investment case following the AA’s recent trading update, they have further downgraded their rating and target price highlighting the dividend worries.
READ: AA downgraded by Berenberg as cost savings take their time feeding through
The analysts said they also think that the group’s strategy update, planned for February 21, is likely to significantly increase investment into the business, further pushing the possible deleveraging story into the outer years.