Car insurance firm AA (AA.) confirmed today that earnings before interest, tax, depreciation and amortisation (Ebitda) for the year to 31 January 2019 will be no less than £340m, in line with its previous guidance of £335m to £345m.
Given the scepticism surrounding the firm's targets today's news is almost an upgrade but the shares have shrugged it off to trade 1% lower at 90.75p.
Trading at the roadside division was mixed with the number of paid personal memberships fell (as expected) by 2% to 3.21 million, but the average income per paid member up 3% to £162.
Paid personal memberships declined under AA’s previously announced plan to re-phase its summer marketing campaign amid regulatory and competitive pressures before increasing marketing spend.
In accordance with its strategy the company aims to achieve a ‘broadly flat’ membership base in the year to 31 January 2020 before returning to growth by 2021.
AA’s insurance business fared better as the motor policy book grew 16% to 731,000, while the home policy book returned to growth at 830,000 policies.
AJ Bell investment director Russ Mould says that while AA’s trading update is slightly better than expected it doesn't necessarily mean the business is in rude health.
He argues that tighter regulation remains a key threat in the insurance division, particularly as the Financial Conduct Authority plans to address product quality and value.
AA also recently renewed a contract with longstanding partner Lloyds (LLOY), where the AA will supply breakdown services to the bank’s 2.4m customers.
‘This [renewal] continues a period of positive contract wins/renewals/extensions (at anticipated terms), demonstrating the early benefits of the investment in technology to differentiate,’ says Peel Hunt analyst Andrew Nussey.
