The AA PLC (LON:AA.) shares slumped on Wednesday as the company cut its dividends and earnings expectations and revealed a strategy to invest more into new technologies and roadside improvement.
The FTSE 250-listed firm said it will invest £45mln in innovation and the growth of its insurance and roadside services and, as a result, will cut its dividend to just 2p per share in 2019, with a 5p payout expected in 2018, down from 9p per share in 2017.
READ: Berenberg turns negative on the AA, downgrading to ‘sell’ from ‘hold’ on dividend concerns
The group also said its underlying earnings (EBITDA) for 2019 will be £335mln-£345mln, below market expectations.
Simon Breakwell, AA's chief executive said: “These investments, while reducing our short-term profitability, are vital to our long-term success.”
As part of its new strategy, the company said it will invest in front-line customer support to improve efficiency and predictability of its roadside business by creating 65 new patrols and jobs for 200 new call centre agents.
The AA expects more customers to start using the AA app as their ‘core digital hub’ and establish customer impact and operational benefit.
Analyst comment
In a note to clients, analysts at Liberum Capital reduced their target price for AA shares to 100p from 250p but retained a 'buy' rating on the stock.
They said: “The long process of de-leveraging just got longer..”
In early morning trading, AA’s shares were down 23% at 89.54p.