AA - bid process extended, numbers slightly weak

All,

Firstly, discussions with TowerBrook and Warburg Pincus are continuing, and they have achieved an extension from the Takeover Panel to announce a firm intention to make an offer for the Company.  Discussions with the Consortium have continued positively and due diligence is on-going.  The new deadline is 27th October, at 5 pm.

Additionally, the Company reported the numbers for H1 (to July 2020) this morning.  In Summary, Trading EBITDA up 5% to £173m from £165m in H120.  Free Cashflow was lower due to the refinancing in February plus Working Capital outflow instead of inflow as experienced in prior years.

Overall, the numbers were slightly weaker than their peers, RAC but not always comparing like for like.  Membership churn was steady at 80%, and although a slight decline in overall numbers, should see stability over the second half of the year.  The Insurance business continues to grow and good cross-selling opportunities continues. FCF was lower than expected due to higher tax payments and some other working capital items linked to COVID 19.  

Due to the bid process, there was limited forward guidance, especially to a hypothetical “right-sized” capital structure.  From the bond’s perspective, the management is focused on deleveraging and would expect a rights issue if the bid process ends unsuccessfully. 

Comparing against RAC and using similar metrics:

Membership numbers* are down at AA by 1% of year on year basis, or 1.6% down on a 6-month basis versus RAC increasing by 4.5% and 1% respectively. 

Segment EBITDA for roadside was up 6% on year-on-year basis, versus RAC up 10%.  It should be noted, that the AA is still guiding for slightly reduced EBITDA for FY21 (to Jan 21).

We remain long the B notes at current levels.

Happy to discuss,

Tomás

*Combining Personal and Business customers, as RAC don’t split out individually.  Note RAC numbers are to December and June, AA is January and July.  

___________________

Tomás Mannion
2 Stephen Street
London W1T 1AN
E: tmannion@sarria.co.uk
T: +44 20 3744 7009

M:+44 7786 705 806
www.sarria.co.uk