RE: SP23 Apr 2020 10:13
This share is only going one way I'm afraid/For investors in AA (AA), that’s very welcome. This week, the group said that while car breakdowns and vehicle incidents had declined by almost half, Covid-19 had still not had a “material” impact on its operations. And though a sharp drop in driving has not stopped mechanic call-outs for flat batteries, a decline in overall activity has helped to reduce costs, including third-party garaging – a persistent source of margin erosion in recent years.
However, in an otherwise bullish trading update on 31 March, the group said there was little certainty on the future impacts on its business. That has prompted the group to defer or reduce operating costs and capital expenditure. In keeping with the broader market trend, the final dividend for the January year-end has also been culled.
In the near term, those actions should support cash flow. A review of the AA’s pension liabilities should save a further £10m a year. But such is the scale of the group’s debt position, analysts are starting to signal that a small downturn could be enough to wipe out shareholders.