Roadside recovery market leader AA receives a thumbs down from investors as increased marketing expenditure weighs on margins.
Shares are trading 8.3% lower at 305p after interim results to 30 June 2015 were published today.
Full year earnings per share estimates in 2015 and 2016 have been reduced by 1% and 15% by analysts at Liberum for four key reasons:
- An increase in insurance premium tax affecting the AA's insurance operations;
- EU legislation on holiday pay increasing costs;
- Further investment of £10 million in restructuring; and,
- Drop off in credit card profits
Fully diluted earnings per share (EPS) is forecast to hit 20.9p in the year to 31 December 2015 and 23.7p the year after, according to Liberum.
Revenue in AA's roadside recovery division gained 2.1% in the period but profit margins slipped as management committed to the company's biggest advertising campaign in a decade, including a return to television advertising.
Performance in other divisions failed to offset these investments: profitability in insurance services declined while in Driving Services and the AA’s Irish businesses profit was flat.
‘The AA has once again demonstrated its fundamental strength, stability and hugely cash generative characteristics,’ says Bob Mackenzie, executive chairman.
‘We are confident that we are in line with expectations for the full year and that we will position the AA as the digital brand for all motorists’ needs.’