Shares in AA PLC (LON: AA) (LSE: AA.L) have surged by 5% today after it announced the proposed sale of its Irish business. The total consideration is expected to be €156.6m, with the buyer being Carlyle Cardinal Ireland Fund and Carlyle Global Financial Services Partners.
The transaction needs to be approved by the Competition and Consumer Protection Commission in Ireland, as well as by the Central Bank of Ireland. The division recorded pre-tax profit of €12m in the year to 31 January 2016 and had gross assets of €163m as of that date. This means that the deal values AA Ireland at around 13 times annual pre-tax profit.
A key reason for the sale is the lack of synergies and cross-selling opportunities with AA’s UK-focused business. AA Ireland is an insurance broker-led business, unlike its UK counterpart and so the sale of the division seems to be a logical move. The two companies will enter into a long term agreement which aims to preserve the current trading arrangements between them for the benefit of both companies.
AA intends to use to proceeds from the sale of AA Ireland to pay down part of its debt. It will continue to focus on broadening its products and services, which thus far has proved relatively successful.
AA is forecast to grow its EPS by 4% this year and by a further 13% next year. Despite such an upbeat outlook, it trades on a P/E of just under 10. In my view this indicates that AA’s shares may be cheap at the moment and the 23% fall in their value since the turn of the year could be somewhat overdone.
On top of this, AA yields 4.1% and its sensible financial management looks likely to improve its long term growth outlook. Therefore, to my mind it appears to be a logical buy for the long term.
The author does not own shares in AA at the time of writing.