AA release trading update in lieu of FY20 results
All,
In summary, a stable set of numbers - in line with model here.
Historicals:
- Revenue in line, £995m versus our model of £999m with (Pre IFRS16) EBITDA of £347m versus £340 modelled and £341m FY19. (Company state IFRS 16 EBITDA of £350m but that includes £3m benefit of IFRS16, which was not in FY19 numbers).
Private Memberships:
- More importantly, membership numbers rose modestly by 0.2% on increased marketing activity, a reversal of previous year declines and slightly ahead of our own assumptions. This is in line with previous guidance that FY20 would be flat year on year.
B2B Memberships:
- As recognised earlier in the year, the B2B business segment continues to see growth with the addition of Admiral and Uber. Average income per customer up 2% to £165 with B2B up 5% to £22.
Insurance:
- The business continues to grow with 19% YoY in motor policies and 2% in home insurance. Additionally, higher conversion of insurance customers to roadside assistance coverage: 36% versus 25% previous year.
Capital Structure:
- In H220 the Company continued to buy-back another £9m bonds to a total of £32m bonds thus far (£29m of B Notes and £3m of A notes).
- In the current environment the Company has cancelled the next dividend, which would have been due in June.
- The company’s triennial pension review, coupled with the closure of a section of its UK defined benefit scheme resulted in a net neutral cashflow over the next years, but reduced future accruals.
- Cash now stands at £149m with the full $50m RCF facility undrawn. Cash is £20m higher than model (£7m by EBITDA). Further detail yet to be provided.
- Using 347m LTM EBITDA, the Company has reduced leverage modestly to 7.7x (from 7.9x).
Delay:
- Following advice from the FCA, the AA has delayed the release of their Annual Results, (FY20 January 2020) which was due today, instead providing the market with a short trading statement.
- No update on when the full year numbers will be released (the delay caused by the FCA advice, not anything internally).
Covid-19: - the company only provided a brief generalist statement on the Impact having been insignificant so far. Management remain cautious, suspending the dividends, which should prevent an outflow of only £12m, which appears prudent.View: - We remain positive on the name. Management are exploring levers to reduce operating costs to offset any potential reduction in policy renewals as well as additional expenses from service disruption. - Having reviewed the company’s performance through and in the wake of the Financial Crisis, we are confident, that its ability to manage cost is greater than the volatility of its top line.For more detail, please contact me.
Tomas