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buzzby67, I see income seekers will need a yield of 5.6% and any less then they would sell. You have a nice idea but it is fundamentally flawed. You have completely forgotten that you can not predict the short term direction of the share price. Diverting funds like this is impossible. If this was possible we would all be rich. I hope it is working so far but that will be more down to luck.
I am very happy with the update. Breakdown services (reported as "paid membership") is a step in the right direction and I do believe this service is primed to grow with the deal at Admiral (who own other websites including Elephant) to upsell sell breakdown with insurance. Both of AA's competitors do this and this and I believe this is a first for the AA to partner another insurance company.
What also came as a surprise is how few motor policies are under car insurance than home insurance. Why is such a large motoring organisation captured so few motor insurance customers in comparison to its home book? 10% growth should just be the start and this is a massive area for growth and the inhouse underwriting has been set up nicely.
I am interested in Smart Breakdown product but is not something I have researched. I also wonder about there other products on their website including that for learner drivers.
I am looking forward to the interim results on the 24th with a focus on free cash flow (FCF) as a measure of understanding The AA because FCF provides an idea of the level of earnings that is really available after it meets its interest, tax and other commitments. This is cash for discretionary spending meaning we can work out how much cash the company can accumulate to potentially start increasing the dividend and amounts to put aside for refinancing. I am not an accountant but believe high levels of FCF combined with a growth in EBITDA should be enough to scare away the short positions because the company can easily meet debt repayments.
I expect both The AA and Kier to drop from the number one and two spots from: https://shorttracker.co.uk/
Shorters are confident this week with the total position at 9.54% compared to 9.44% at the end of the last month. I can see why. With Britain's potential hottest day on record, Green Flag estimated there will be more than 81,800 breakdowns in a week because of the hot weather compared to the usual 12,800.
Nevertheless, the bull case is also compelling. I have bought at 49p shares with a 2-year target £200p. The AA have been investing in front line services, IT upgrades and elsewhere in the business. These investments can take a longer time to come through than the market likes, but it's about time for FY20 .
https://shorttracker.co.uk/company/GB00BMSKPJ95/
https://www.theaaplc.com/investors/financial-calendar/2019
A down day in the markets is convenient for shorter closers hence the share price increase. I am not sure why they are worried about the pre-close trading update on the 8th of this week. Remember the company has to be doomed with no reversal in fortune at 9.5% short, so all your shorts are safe. Smallcapjoy grow some balls and add to your short position as this is going to 30p surely?
Dividend re-investment should not affect the price either. With the dividend even after the re-base cut, is still very chunky indicating an SP range higher than recent is possible without income seekers selling.
What I have learnt is the average fund managers struggle to move stocks around like this, this is why they have a large portfolio of stocks designed to pay off in the long run in an attempt to beet the index and mostly fall short of the global index. The best move stocks around based on ROCE (Lindsell, Fundsmith). Hand on the heart has your/my portfolio managed to beet 2000 stocks in VWRL (Vanguard World Funds).
My views are biased towards growth and not income.
Director buys, awsome TV advert and green shoots of growth in insurance are perhaps worrying the odd institutional shorter. But realistically the trading update should be poor given that a colossal 10% of this junk stock is short, and any reversal in fortune the shorters would not all be able to close this position without the SP shooting off the scale should EBITDA be on track closer to 400m for FY20 from £341m in FY19. The institutions are far too clever to take the risk to make this mistake. They probably factored in the record hot weather driving up costs and used all their computer modelling power to come up with decreasing revenues as one investor rightfully said free cash flow would indeed need to more than half before re-payments can be made. If this swing the other way and the AA continue to pay down debt a debt-free AA is worth 500p-700p so the risk is too high for shorters to make this mistake. Blackrock can afford to make a mistake but it will go down as one the biggest mistakes that we have ever seen.