M Falcon
26 Feb 2018
Neil Woodford increased stake in AA after stock slide Neil Woodford has bought more shares in the AA, the day after the breakdown cover group saw its stock price slide 30 per cent following a cut to the dividend and a profit downgrade to fund more technology investment. This was reported in the FT
numberbiter
26 Feb 2018
Re: crushed on trading upda "We have significant scope to sell insurance to Roadside members."I am amazed how many people believe optimistic reports from Company Directors, without reading behind the lines. If you buy insurance you have to be confident that you will be paid out in the event of a claim. With the AA, you cannot be confident as they are a busted flush. Just look at the Balance Sheet to see that liabilities far exceed assets. If they had a major claim in their first year they would have to borrow even more money. I don't think the banks would take the risk.The assumption (key word 'significsnt') that Roadside members would switch their car insurance to the AA is fanciful.
gamesinvestor
26 Feb 2018
Re: crushed on trading upda Johan, by cross sell you mean sell insurance?This is also very difficult with comparison web sites highlighting a range of prices, it must surely limit AA's returns -- and I guess there is also the option to sell the insurance business to reduce the debt.Wasn't this the basis for the previous CEO's bar room issue?Games
Johandesilva
25 Feb 2018
Re: crushed on trading upda If that is true well it's lucky for the company that breakdowns are not at all in decline. While Tesla are the most reliable electric cars, those by other manufacturers and hybrids generally speaking are more unreliable and with batteries the number one upsell I don’t really see this point of view. Don’t get up sell confused with the strategy of cross sell. From the strategy update it is cross sell they are focusing on…“We have significant scope to sell insurance to Roadside members”
numberbiter
25 Feb 2018
Re: crushed on trading upda Thank you Schwee, my radiator story was just that. In those days the AA was a profitable business, as the only competition was the RAC. Nowadays, the competition is intense and times have changed; cars are more reliable.Whoever sold the AA business knew exactly what they were doing; they sold an aging (mature) business for an excessively high price. The new business was landed with a massive level of debt, which they cannot get down.This business is in dead trouble; shareholders need to look at the latest Balancd Sheet.
schwee
25 Feb 2018
Re: crushed on trading upda In principle numberbiter is correct. Car hire companies follow a similar business model of overcharging for any repairs.
Johandesilva
25 Feb 2018
Re: crushed on trading upda numberbiter experience with his radiator makes him an expert. If this is all the evidence you need to make an informed decision on whose right then good luck to you.
numberbiter
24 Feb 2018
Re: crushed on trading upda I am afraid 'Games' is not only right in what he says, but fewer breakdowns will actually cost the company more, not less. As 'Games' pointed out, the vans, their equipments and the qualified mechanics are a fixed cost. But where a car breaks down and needs another part the AA benefits by either selling the part or getting commission from the garage doing the repair.Several years ago when I was with the AA, my car overheated and I had to stop several times to fill the radiator with water. Eventually I had to give up. The AA man said the radiator had had it, so they would tow me to 'their' garage and then take me home. I asked how much a new radiator would cost and he said to supply and fit it would cost between £80 and £100. I hadn't got enough money to pay for this, so I insisted they drive me to 'my' garage. I locked the car outside his premises and put a note and the keys through his letterbox.The following morning I telephoned my man (I had been with him for a few years and trusted him) to get his verdict, when he could do it and how much would it cost. I hoped my father would lend me the money."All done squire" he said. I thought this was amazingly quick and fearing the worst I asked him how much. "To you mate, 50p". It turned out the fault was the radiator cap and he had taken one from a scrap car.But these days cars are more sophisticated and have built in computers to assess problems, but not everyone has access. For example, BMW has its own recovery service that is included in the cost of the car. Given such sophistication I think an 'app' that will solve problems for any make of car is a pipe dream.Given that the AA has a high level of debt and thanks to the way it was set up is in the position that its liabilities exceed its assets, then it is nearly 100% certain that this company will go bust. This will happen when anything goes wrong and the company needs to borrow more money. It will happen, the only thing I don't know is when,Investors hoping for a takeover are going to be unlucky. No company would take on AA's debts by buying shares; they might of course buy assets (in this case intangible assets in the form of the company's customer data), but this would never be enough to wipe out the company's debt. Sell now while you can.
gamesinvestor
23 Feb 2018
Re: crushed on trading update "Fewer breakdowns will result in *less cost* to this company, not less membership."Johan, I sincerely hope you are right m8, as I broke my rule and invested (fortunately modestly) in this turkey.I gambled on the bar room punch having a momentary lapse in the share price and it would be bouncing back -- it seems the malaise runs much deeper.Fewer breakdowns does indeed to some extent mean less cost, but also means less opportunity, since the stated aim of the management was to significantly increase upsell, and you can't do that if you are not at the roadside attending to the punter.Less cost is though marginal, in that the fixed cost in terms of salaries and vehicles are pretty inflexible.Games
Johandesilva
22 Feb 2018
Re: crushed on trading update You guys and other P.I.'s around the web are not looking at the complete model when criticizing single elements of the model in isolation. reading each other’s posts, confirmation bias is creeping in not just regarding the business model but I also suspect the financials too.e.g.1:“The first impending disaster is the risk that membership will reduce as cars become more technically advanced (as detailed by another poster).”Fewer breakdowns will result in *less cost* to this company, not less membership. Starting issues and punctures are the top two reasons for breakdowns and are not easily detectable. And in this particular example, the manufacturer is picking up the tab and still paying them (who do you think runs all these branded silver vans and equally costly call-centres!). If manufacturers can predict breakdowns like Car Genie then that’s a good thing for this company and the future share price. If the AA can sell Car Genie then thats a win win. Technology is key to driving continued success and Woody knows this.
numberbiter
22 Feb 2018
Re: crushed on trading update I agree that a company is only insolvent when a company cannot pay its debts. Carillion was solvent until the banks got nervous and refused to lend them more money. It seems pretty obvious to me that the banks are getting nervous with this company and have said they will not lend much more. This is why the dividend had been cut; the debt has to be reduced. So, the company is still solvent now, but it would only take a couple of disasters to put it over the edge. The first impending disaster is the risk that membership will reduce as cars become more technically advanced (as detailed by another poster).It just cannot make sense to pay nearly 90p for a share that offers so little reward while at the same time it can be considered high risk.
Rhino1958
22 Feb 2018
Re: Woodford increases stake again In addition My concern is the technologyMy car is already connected It tells me what needs doing messages me and requests a service date. If I don't respond I get a call from the service department. Mercedes knows a lot about my vehicle even before I've visited the service dept.Its the way things are going whether AA can compete with the manufacturers in years to come is debatable.Back in the eighties my mother inlaw had an AA phone. It came in a suitcase was the size of a mallet and could only call one number the AA. Hopefully they their IOT will be better.
gamesinvestor
22 Feb 2018
Re: Woodford increases stake again "He seems to trust the way the company is going to use technology to turn the company around ??"Sadly Woodford puts his trust in the last person he's spoken to in the company.Unfortunately he doesn't have the analytical skills to decide if a company is a good or a bad investment.I can say this with confidence since the number of mistakes he's made in the last 3 years looks like a copy of the yellow pages.Games -- I also made a mistake entering this at 1XX (Woody started at 2XX) and it looks like it'll be a slow death so pondering if the debt is so large that it's beyond recovery.
Rhino1958
22 Feb 2018
Woodford increases stake again He seems to trust the way the company is going to use technology to turn the company around ??
TX2
22 Feb 2018
Re: crushed on trading update A company only becomes insolvent if it cannot pay its debts as & when they become due.AA is not in this position.It is also important to note that AAs trading divisions remain highly profitable & are worth vastly in excess of their book value.They are totally solvent and are very valuble businesses.What we are talking about here is the financial structure of the listed holding company which is a non trading entity and owns the trading companies.When the company was listed the ownership of the trading companies was split between shareholders & bond holders & other long term secured lenders.Presently based on the likely profits;the bulk of the value of the business belongs to lenders and bond holders.Because after servicing the debt,providing additional capital to develop the business little earning or "worth" is available to give significant value to shareholders.The problem here is about capital structure,the business was loaded up with debt prior to floatation.The debt in the main was not required to finance the business;shareholders bought only part of the business,and as in the sale the trading business was probably over valued rather less than they thought. In my opinion more equity capital needs to be put in to redeem some borrowings whether this process would leave much value for present equity holders remains to be seen.
