FTSE 250 newbie AA (AA.) is accelerating investment in IT, marketing and new business initiatives as the 110 year-old business seeks to make a fresh start under public ownership. Brought to the market in June last year loaded with high interest debt after a decade in private equity hands, AA's executive chairman Bob Mackenzie plans to raise £200 million of equity and refinance the company's debt.
‘This is a very exciting time for the AA – and our Members – as we put in place the building blocks for long term future growth as the UK’s pre-eminent motoring services organisation,’ says Mackenzie in a full-year results update.
Earnings per share (EPS) declined to 13.3p for the year to January 2015 compared to 32.7p for the same period last year. The difference is the result of higher interest payments incurred as part of the private equity exit and initial public offering (IPO) costs. Trading earnings before interest, tax, depreciation and amortisation, management’s preferred measure of operational performance, increased 1.7% to £430.1 million.
Analysts at Liberum have not yet updated their forecasts but previously flagged EPS of 22.4p and 29.3p for the next two years. Those figures are likely to be upgraded as the equity fundraising and debt refinancing will reduce interest costs by £45 million a year.
Shares highlighted the attractiveness of such a move to shareholders - and the AA's prospective FTSE 250 membership in an article in January. The stock trades flat at 426p today, yet has gained 84% since listing on the stockmarket in June 2014.