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The AA posts in-line underlying profits despite decline in membership

Delivery of the strategic plan remains on track, the roadside recovery group said
AA man doing roadside recovery
Paid personal memberships declined by around 2% to 3.21mln in the year just ended

Underlying earnings for roadside recovery group AA plc (LON:AA. for the year just ended were slap bang in the middle of the company's guidance range.

Trading EBITDA for the year to the end of January is expected to be not less than £340mln, in line with the company's guidance range of £335mln to £345mln.

READ AA posts sharp fall in profits after cold weather leads to more call-outs

The group said its Roadside and Insurance divisions put in solid operational performances.

The Roadside division retained or extended all its key fiscal 2019 business-to-business contracts, plus it won a three-year contract with Arval, described as “a significant new business win in the Fleet and Leasing sector”.

The division's average income per business customer increased by around 5% to about £21, reflecting the new contract wins and additional revenue recognised under our pay-for-use contracts.

Average income per paid member rose to around £162, up about 3% since last year. The increase, which is broadly in line with inflation, includes the shift in new personal members taking up monthly subscriptions and selecting higher levels of service coverage with their subscriptions.

On the Insurance side, the motor policy book was a highlight, demonstrating strong growth, with customers rising by around 16% year-on-year to about731,000.

In common with a lot of companies previously owned by private equity groups, debt has been a concern but the group stressed that with an average maturity of debt of just over four years, it has the flexibility to execute its strategic plans to deliver profitable growth in our Roadside and Insurance businesses.

Capital expenditure for the year just ended is expected to clock in roughly in line with the company's guidance of £105mln.

Confident update

Broker Peel Hunt said it was “a confident update” with underlying earnings slightly ahead of the market's consensus forecast of £338mln and also higher than its own forecast of £335mln.

“In Roadside (84% FY19E EBITDA) paid personal memberships fell, as expected, by c2% (PHe -2%), principally due to the rephasing of summer marketing activity. Management expects paid membership to stabilise in FY20 (PHe 0%), with growth thereafter (PHe 1%),” Peel Hunt (PH) noted.

“Retention was just above 80% (vs 81% at H1), with an average income per member up 3% to £162 (PHe £161). B2B income/customer rose 5% to £21 (PHe £21),” it added.

The broker left its fiscal 2020 estimates unchanged and reiterated its 'buy' recommendation.

“As investors appreciate that the investment requirements have proved sufficient to deliver both growth and strengthening cash flow, the potential for rerating is significant. We anticipate material debt to equity transfers and this supports our positive stance,” it concluded.

The stock is one of the most shorted on London, with around 9.2% of the shares in issue on loan to short sellers and they will be pleased with this morning's share price reaction, which saw the stock fall 1.6% to 90.3p.

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