AA share price jumps as unveiling of strategic review is brought forward

 
Oliver Gill
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AA shares have fallen around 40 per cent since last July (Source: Getty)

Investors in car breakdown giant AA were buoyed this morning by an announcement that a strategic review will be delivered earlier than expected.

Shares leapt as much as nine per cent as stock markets opened. They are currently 5.6 per cent higher.

Full-year earnings would be in line with expectations, between £390m and £395m, AA said.

After a turbulent 2017, which saw the bizarre departure of boss Bob Mackenzie during the summer and a failed insurance tie-up with Hastings, AA said it would unveil its plans for the future on 21 February.

Despite today's share price rise, around 40 per cent of the company's stock market valuation has been wiped away since last July.

Read more: "Astonished" AA slams legal action against ex-chair's sacking

While roadside membership fell, the AA's motor insurance arm swelled by six per cent with the firm writing 629,000 policies during the year. Home insurance volumes – which it previously flagged as stuttering – fell by five per cent.

AA said it continues to "generate healthy levels of cash", boosted by lower interest costs following a refinancing last summer.

The decline in roadside memberships followed the discontinuation of free roadside membership for AA insurance customers from December 2015.

Analysts said the shift in sales mix from breakdown services to insurance would boost cash flow.

Liberum head of research Joe Brent said the publication of the strategic review would "add flesh to the bones" of the AA's corporate direction. He expects AA to grow its insurance underwriting while protecting its roadside business. Meanwhile, the firm will simplify operations and provide more clarity on its dividend policy – which Brent expects to be halved.

Barclays analyst James Rose added: "The shares have been weak recently – partially due to the expectation that December’s exceptionally cold weather may put pressure on profits. The pattern of breakdowns seen was in line with the company’s forecasts though, and guidance back in June built in headroom for further call-out volatility."

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