Berenberg knocked shares in AA plc (LON:AA) lower again on Monday as the German bank cut its price target for the motoring services and insurance group to 65p from 86p and reiterated its rating to ‘sell’ following last week's strategy change which saw the firm cut back its dividend and earnings expectations.
In a note to clients, analysts at Berenberg said that there is a long road to recovery ahead for the FTSE 250-listed firm, and the risk/reward trade-off remains negatively skewed.
READ: AA shares plunge after cutting dividends and earning expectations in strategy change
They also reduced their underlying earnings (EBITDA) estimates for AA to £342mln for 2019, due to the increased investments required in the business.
AA's new strategy will see it move the business from a breakdown ‘cover’ operator to a ‘products and services business,' however, Berenberg's analysts think that the economics of this strategy is flawed
They said: “With cars becoming increasingly reliable and telematics potentially predicting breakdowns before they happen, we believe that looking to grow roadside assistance members and increasing the recovery fleet is counter-intuitive.”
The analysts concluded: “We believe there is no quick fix for the AA’s substantial leverage, which we expect to remain a concern for several years.”
In late morning trade, AA’s shares were down 6.3% at 80.62p.