kolwezimundele
22 Feb 2018
Re: crushed on trading update OK, given Wednesday's magnificent performance, do I get a gold star for wondering on Tuesday if AA was turning into yet another Carillion? On a different topic, can anyone point to any non-commodity, non-international biased sector in the UK where share prices are either not currently falling or expected to fall? Truly, cash is king. Buy all of AA, Capita, Provident Financial, Babcock, Greene King, M&S, BT, Petrofac, National Grid etc etc. - all abysmally 'low' (relative to prior pricing, if not earnings). Would one be a pauper or millionaire in 5 years?
numberbiter
22 Feb 2018
Re: crushed on trading update The Balance latest Sheet is negative (liabilities exceed assets) to the tune of £1,871 million or £3,162 million if you ignore intangible assets. Net debt stood at £2,618 million, which is equal to 429p per share. Shareholders' funds = minus 307p per share. This means that shareholders have a liability of 307p per share. In the latest half year to 31/7/17 interest of £98 million was 55% of operating profit.There is no growth year on year and at the current rate of earnings it will take over 20 years to clear the debt, assuming there were no dividends nor no capital expenditure in that time.From now on shareholders are going to receive a dividend of 2p per share, giving a yield on the current price of approximately 2.2%.It should be pretty obvious that the banks have forced the dividend cut, as they must be getting very nervous of the company's debt mountain. As for potential growth, it is difficult to see where this is coming from as the competition is fierce; most insurance companies offer motor insurance with the car recovery option.This company is effectively bankrupt and is heavily reliant on their bankers for support, but it would not take much for the banks to say 'no more'. To get this current Balance Sheet in context, it is far far worse than Carillion's fatal 2016 accounts.The question is: why would anyone in their right mind pay 89p for a shsre for a yield of less than 2.5% when the risk is high that the company will not survive?
Bill1703
21 Feb 2018
Re: crushed on trading update "At best shareholders have a small highly geared "stub" holding in the business which could be worthless if it was considered that the total value of the business was less than the value of debt secured on it..."TX2 - yes, indeed, but it was ever thus... Certainly, anyone getting involved with this recently would (should) have known exactly the terms of "engagement".It is why the range of potential SP "outcomes" (depending on your chosen time horizon) was, and remains, unusually wide. The equity "stub" COULD be worthless, or - on a relatively modest uptick in your view of the underlying business value - could be worth a reasonable amount, eg. more, even a lot more than the current market cap. Take your pick... however, I do generally believe there's a significant disconnect between the bond holders' view on overall business value (and hence sustainability of the prevailing capital structure) and the current, pessimistic equity market view.But talking of disconnects... pouring over the Strategy statement, I am in two minds. It's a detailed and comprehensive business plan, for sure, and most of it makes good business sense. But I can't help feeling the new CEO and his shareholders are talking at cross-purposes, just at the moment... he's all about reinvigorating the underlying AA business (and you can ask the question, to what extent does it really need reinvigorating... new CEOs do like to rearrange the deck chairs), while the market cares more about whether AA plc can survive in its current capital structure.It does include a spirited defence of the sustainability of the current debt profile, which I find encouraging - but not much actually new here, and I don't think the market believes it. And even if it does, the equity may still not be worth much... now or quite some time into the future. I'm also not sure why they've kept a token 2p divi - better to scrap it entirely and then start again, as (if) and when, from scratch?But if they do achieve their medium term goals, I would say there is upside... perhaps plenty of it. But for that, I guess we'll have to get patient, or get out... on balance I will give the CEO the chance to deliver, on what was always a small (and getting smaller) and speculative holding for me. We'll see who else is up for it...
Bill1703
21 Feb 2018
Re: crushed on trading update "... Woody is trying to emulate the film "Brewsters Millions" where the objective is based on a time limit he has to get rid of a fortune in order to win the game.... many that have little or no dividend payment, nd a goodly % of them even unlisted for an "income fund?... Is he going to win the game by depleting all his investors funds?"Loth as I am, Games, to join in the popular blood-sport of Woody bashing - judging by the rate at which his investors are withdrawing funds, he's going to "win" this game sooner rather than later.And he might as well stuff his income funds full of non-dividend paying stocks... most of the previously big-dividend paying ones he owns are steadily slashing or even passing their dividends...Oh, it appears that I have joined in...
gamesinvestor
21 Feb 2018
Re: crushed on trading update "why did woodfood increase his stake to 14% then?"I think I've worked this one out -- Woody is trying to emulate the film "Brewsters Millions" where the objective is based on a time limit he has to get rid of a fortune in order to win the game.He's having a very good shot at it, as he is very good at picking stocks, most of them in fact that are distinctly overvalued and tank at the slightest whiff of trouble. He ensures the outcome by selecting stocks with very high debts and on very high P/E ratios. He also prefers companies with no revenue stream and no released products and many that have little or no dividend payment, nd a goodly % of them even unlisted for an "income fund?"" durr!!.It's remarkable how effective he's been at it!Is he going to win the game by depleting all his investors funds?Games -- Oh you are going straight to hxll for that one!![link]
contrarianstyle
21 Feb 2018
Re: crushed on trading update why did woodfood increase his stake to 14% then? or is that a silly question given how his investments go these days....
TX2
21 Feb 2018
Re: crushed on trading update The point to understand is that with £2.6 billion of net debt almost all of the business belongs to the lenders.At best shareholders have a small highly geared "stub" holding in the business which could be worthless if it was considered that the total value of the business was less than the value of debt secured on it.
Eagerbeaver66
21 Feb 2018
Re: crushed on trading update Rather uninspiring strategy update - we'll carry on what we're doing, and cut the divi to tighten our belt! With so much debt I cant see why it wont drop to 50p before recovering.
schwee
21 Feb 2018
Re: crushed on trading update Value of AA is difficult to fathom. On the one hand the balance sheet is stuffed full of goodwill (mainly worthless) and debt. On the other hand it has a brand, a substantial middle class customer base, and good cash flow.So the positives coild tempt a predator.
contrarianstyle
21 Feb 2018
crushed on trading update Shorters burn Woodfood again...To me looks undervalued at 85p, even though dividend cut and profits in 2019 lower than 2018 as they look to turnaround the business
kolwezimundele
20 Feb 2018
Re: Trading Update Ouch....slippery fingers.."The graph indicates an uncomfortable likeness....."
kolwezimundele
20 Feb 2018
Re: Trading Update Tnree year chart is now a waterfall - 420p to 112p. Much as we all hate paying for insurance, is this utter collapse really justified? High debt, dividend may be cut etc etc. but is AA really another Carillion? The graph indic
Bill1703
19 Feb 2018
Berenberg ahead of Strategy Review Edited highlights below... Sounds like the dividend is indeed history - they may even have no choice. Obviously not great news they now put a price target of 100p on this - but in context, they're not really coming up with anything which Barclays hasn't already come out with, and some time in advance, and Barclays concluded it was worth more like 200p. FWIW it is just more evidence that the range of feasible SP out-turns is unusually wide - in both the near term and further out... "We downgraded The AA to Hold in October last year, with a thesis that consensus expectations for the company were too high, and that additional investments announced by the new CEO were likely to increase costs and worsen the company’s cash generation. Revisiting the investment case following the recent trading update, we now believe the short-term risks to be greater than previously assumed, and are of the view that the company’s dividend will need to be cut; we also think that the strategy update planned for 21 February is likely to significantly increase investment into the business, further pushing the possible deleveraging story into the outer years. Given these factors, we downgrade to Sell and reduce our price target to 100p.With new CEO Simon Breakwell’s first strategy update to the market to come on 21 February, we expect significant further investments to be announced, particularly in the insurance underwriting business, IT systems and higher patrol levels. This (again) pushes the company’s deleveraging story further into the future. On current forecasts, we forecast the AA’s leverage at 6.5x 2020E net debt/EBITDA, or 7.5x including the company’s £395m pension deficit.The company’s dividend gating ratio states that the maximum dividend payout is equal to the difference between 5.5x maintenance EBITDA and the total Class A net debt position. With our forecast Class A net debt position of £2,125m, and £385m of 2019E EBITDA, this would imply a permitted investor payout of -£5m, meaning that no further payout would be possible."
Bill1703
08 Feb 2018
Re: Trading Update "Does this imply that they expect cars and other vehicles to become less reliable?"Not necessarily - it probably just means that actually using the service, as opposed to just having it for peace of mind, means you are more likely to keeping paying for it. Which I am sure is true, based on personal experience...But I have heard the view that a significant shift to electric cars will likely mean lower, rather than higher, average reliability, at least in the short term. And we already know that the vast majority of AA calls result from things (tyres, batteries, other electronics) relevant at least as much to electric cars as our old carbon ones. "Still reviewing strategy means perhaps something could still be sold off perhaps?"Yes, numbers are fine - it's all about the strategy review. Which means it's all about the debt, I'm afraid... as indeed today's market would confirm - stock strongly up on a reassuring in-line update, then the BoE pops up to warn of rising interest rates, and the AA plummets again.Problem is, I'm not sure what the new CEO can do. Could sell or merge insurance, but I'm sure they'd rather not, and there is clear synergy with the roadside biz (though they don't actually need it, ultimately). They are already investing heavily - and ahead of the competition - in the core business and associated technology. And you can't just magic away the debt...Cutting the divi? I think we should prepare for it - and I think it's probably all or nothing, not much point in just trimming it - if only because it's hard to see what else they can do, and how many new-CEO strategy reviews conclude with the status quo intact? A big equity raise? Sure, eventually, one way or another - but they don't need to now, they don't want to do it now (ie. at a depressed SP), and it's doubly hard to do if you are taking back the divi at the same time....We will see soon enough.... Question is, if they do pass the divi, which way the SP? Not as straightforward as some might think IMHO... and lest we forget, it would be a theoretically "value-neutral" move. Not that the market ever lets the theory get in the way of a good (or bad) story!
gamesinvestor
08 Feb 2018
Trading Update [link] pretty good, adding 7% new customers and numbers expected to be in line for the year.""In the longer term, the AA expects increased utilisation of the breakdown service to drive retention."">>> Does this imply that they expect cars and other vehicles to become less reliable? That would be a good thing wouldn't it - especially with the increasing complexity of electronics on board these days.""" with 6% growth in motor policies to 629,000. This helped to offset the expected 5% decline in home policies to 818,000"""">>> Let's hope there is more margin in motor policies compared to home.Still reviewing strategy means perhaps something could still be sold off perhaps?Games
