Thursday 8 August 2019 10:10 am

AA share price climbs as earnings accelerate at motor breakdown insurer

Breakdown insurance firm AA saw its share price rise almost five per cent this morning as it told investors that half-year earnings are set to outpace last year’s growth.

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Earnings before interest, tax, depreciation and amortisation (Ebitda) for the six months to July will beat last year’s corresponding period, AA said, even as performance is expected to improve in the second half of the year.

“We are building positive operational momentum across the business as we continue to make significant progress on our strategic plan,” chief executive Simon Breakwell said.

“We reiterate our confidence that the roadside membership base will be broadly flat this year and will return to growth in the year to 31 January 2021. Our insurance business is also performing strongly supported by the growth of our in-house underwriter.”

AA expects to hit Ebitda targets for the 2020 full-year, and generate “strong free cash flow” as it remains on track for medium-term targets in 2023.

The business generated £40m of cash flow in the first half and paid memberships fell slightly – from 3.21m to 3.19m.

Meanwhile motor insurance policies grew 10 per cent to 803,000 while home insurance policies rose 1.3 per cent to 841,000.

“Our focus continues to be on delivering long-term sustainable value for our shareholders,” Breakwell added.

Shares rose 4.8 per cent to 52.6p this morning.

Liberum, which has a target price of 130p for AA, welcomed the update, saying “there are signs of stabilisation” in memberships after recent falls in numbers.

Read more: AA blames investments as profits suffer breakdown

“The Insurance business continues to perform well with motor policies up 10 per cent vs full-year 2019,” the broker added.

Main image credit: AA