The AA has always considered itself the most staunch of organisations.
Take one of its earliest episodes, three months after its foundation in 1905, when a member called Herbert Johnson was accused of exceeding the 20mph speed limit. One of the association’s scouts, William Jones, swore an oath that the motorist must be innocent as he’d followed him on a bicycle at a speed of no more than 15 or 16mph – but, irritatingly for patrolman Jones, the court didn’t believe him. Johnson was convicted and Jones was arrested and charged with perjury. The AA then staked all of its funds and risked bankruptcy trying to get its employee acquitted, which, thankfully for Jones, it did.
It is not quite clear if any of the AA’s current crop would be prepared to do a stretch for a member now, and certainly patrols providing questionable testimony is not mentioned on the current list of members’ benefits. Still, more than a century later, the tale does seem to have relevance, at least as a strained metaphor about how the actions of some speedsters can cause the AA financial discomfort.
The company was floated on the stock market in 2014 and overloaded with billions of debt by the private-equity boy racers (finger salute out of the driver’s window to CVC and Permira). They re-engineered what should have been a simple runabout into something resembling a Reliant Robin towing a Winnebago – with the AA now valued by the stock market at £525m as it drags along £2.7bn of debt.
Astonishingly, a bunch of City fund managers bought the sales patter, only to watch the price of their shiny new vehicle slump as soon as it had edged off the forecourt.
They have been regretting this impetuosity ever since: “star” fund manager Neil Woodford’s chunky stake has contributed to his fund continuing to have a shocker, and the AA’s debt will be raised again this week as it updates the City on current trading ahead of full results in April.
Full-year profits are expected to be about £74m on revenues of £960m, and the City won’t have much patience if there is any indication of a slippage to those numbers.
The shares, which floated at 250p, now change hands for around 86p, yet there are plenty who reckon it could get worse from here, as they are among the most shorted on the London stock exchange. Blackrock has a negative position of 4.6%, while others betting that the shares will fall further include AQR Capital, Merian Global and Engadine Partners.
Successive bosses have been tried to jump-start the business: Chris Jansen was ousted just eight months after the float and replaced by Bob Mackenzie. Mackenzie was dismissed after assaulting a colleague on an awayday. Current chief executive Simon Breakwell was brought in to turn the company around in 2017 and by and large the City seems to think he is a steady driver. The company has ruled out a capital-raising to pay down debt, which leaves either selling off assets or growing the business. Yet growth also seems to be some way down the road.
Sales from what the company calls “roadside” – essentially its recovery service – account for 84% of revenues. But this core part of the business is in reverse. The company expects roadside to shrink this year and stay flat next before moving forward in 2021. It is also going to take time to show significant revenues from the firm’s new technology products, which predict impending problems rather than waiting for cars to break downand sending out a rescue party.
Which sounds like something that the AA’s chastened investors could have done with too.
