AA PLC (LON:AA) (LSE:AA.L) has announced interim results for the six months to 31 July. It has traded in line with expectations and Personal Member numbers are now rising. This is a step change from the long-term historic decline, so represents progress for AA. Its transformation is on track and AA’s cash generation remains strong.
AA’s trading revenue increased by 2.2% to £467 million due to strong performance from its Roadside Assistance division. It has experienced growth in paid Personal Member numbers for Q2 as well as post-period in August and September. However, EBIT was flat on the same period of last year at £132 million. This was the result of higher share based charges which were partially offset by a lower level of exceptional items.
Due to the absence of refinancing payments that impacted last year’s results and lower interest costs, AA’s profit before tax increased from minus £69 million last year to a profit of £48 million this year. Cash conversion before exceptional items was 99% and net debt was £2.8 billion as at period end.
AA is encouraged by the success of its new marketing strategy and the impact it is having on reversing the decline in paid Personal Members. Its investment in technology is on track and it is confident about the scale of its opportunity.
In the last year AA has recorded flat share price performance. This is lower than the returns on insurance peers Aviva plc (LON:AV) (author owns shares), Prudential plc (LON:PRU) (author owns shares), Admiral Group plc (LON:ADM) and Direct Line Insurance Group PLC (LON:DLG) over the same time period. Aviva has risen by 2%, Prudential is up 32%, Direct Line is 3% higher and Admiral has risen by 42%.
In my view, AA is making good progress as a business and is turning around its performance. Its P/E of 12.2 is fair value in my opinion and its EPS is forecast to grow at a double-digit rate next year. Therefore, I feel it has investment appeal.