Intellectual Amateur
26 Aug 2017
A.ctually A.ce or a D.oD.o? Follow-up. Thank you Games, Bill & LKH - your thoughtful & detailed responses are much appreciated here at the IA Villas; I like your positives & negatives presentation Games - very binary / ying & yang / day & night etc. My brain works like that I think, so it really helps my thinking.I'm not saying that Games & Bill are necessarily "positive" on the AA but it seems LKH could be said to be definitively "negative" on the AA (having read many previous posts) - and I understand his POV on this - the debt is huge.I was researching this week trying to find some causes for the 20p-ish SP fall (over the last 9 days) - this might be terribly naive - but all I could come up with was Ford's scrappage scheme (old cars crushed, more new cars, less breakdowns, less AA sign-ups?) & the general switch to electric cars. On the latter, I am not convinced: I live near a university-related electric car development site & all I ever see are broken-down electric cars (yippee! Can the AA fix broken-down electric cars in the AI future?!)! Weakly anecdotal I accept.Well, we're at 167p; my break-even is 186.2828p so I'm seriously underwater - but I don't sell at a loss (pig-headed, stubborn, mis-guided?!) so it's a painful hold; I wouldn't have sold this side of the 2018/19 tax year anyway but I was hoping to hover around 185-190p, see what happens with the half-year results (26 Sept), hopefully new exec., interest rates staying at rock bottom & possibly even hold until the full year results, see what the divi is etc. So no decisions until April 2018, at the very earliest. Hopefully we'll get back to 187p before too long.Target sell is 250p but if I don't like the lay of the land come April, I will consider getting out at break-even (if poss) & start trawling my nets for a new big fish. I learned my lesson in terms of long-term holds with LBG & RBS - the intention is to stay nimble, not be greedy but to demand a 10% annual return (ha!)Thank you again, esteemed colleagues. Have a lovely long weekend. I'm off to watch the incomparable "Inspector Montalbano" and dream of living by the sea.Ciao - Intellectual Amateur (I thought I was Moebius but it was such a long time ago that I originally signed up, so iii must be correct - IA it is!)
gamesinvestor
26 Aug 2017
Re: Is the AA now the DD? Bill - I see parallel's between the AA and Britvic/Card Factory a few months back.Both were valued according to the "efficient markets theory-LOL!!!"" and now they are both 41% and 33% up respectively, at least from the day I fell on the green button and unleashed a goodly amount of my wad on both -- 4.6% combined.The only difference as LK rightly points out is the debt - it's not pretty.However, the business has been stable for 5 years (hopefully also for the next 5) and during the last three the debt has reduced from £3.3Bn to £2.7Bn -- an 18.2% decline -- slow but steady.Plus, the AA has 30+% operating margins -- there's aren't an awful lot others that do in reality.I'm with Woody on this, he's my hero and I'm following his lead on such an excellent selection.Mind you if the stock drops to 90p as the guy on here has suggested from looking at the goat's entrails, I'm gonna look a right chump.Ah but he says, knowingly with broad cheshire like grin on his fizzog, I'll be less of a chump than the fund manager who shall remain faceless (I mean nameless) who bought shed loads at 250p and a further Aircraft Carrier load at 385p.Games -- safe in the knowledge that whatever happens he won't be labelled "chump", but "lesser chump"
Bill1703
26 Aug 2017
Re: Is the AA now the DD? "... why does this song from the Jungle Book spring to mind?"Now now, LKH, just you wait, when the market realises that everything is indeed all tickety-boo under the AA bonnet (!) and starts shooting through the roof, you'll be hopping around like King Louie... "Oo ooo oo, I wanna be like you oo ooo....!"Or.... maybe not! I did say, I see no reason why it "cannot" regain these levels... I did not say, "will not" - an important clarification, I am sure you agree.FWIW ... while visibility is low here, my broad hope is to double my money here, on a 12-18 month view. And hope not to lose it all... though this is less likely on that timescale, but after that, who knows?And in any event it is one to watch carefully in the meantime, on the way up... or t'other way, as the case may be.
LK Hyman
26 Aug 2017
Re: Is the AA now the DD? Bill,"I see no reason why 250p - and even 300p or more - cannot be regained in fairly short order"Hmmmm .... why does this song from the Jungle Book spring to mind?[link] wouldn't put MY hard-earned into the AA. That's a real mountain of debt that's sat on the balance sheet. It'll take an awful lot of trips by AA patrolmen on Beezers with sidecars carrying a lifesaving tin of jizzup or a set of spare spark plugs to pay that off.LKH on the flybridge give me a strong balance sheet every time
Bill1703
26 Aug 2017
Re: Is the AA now the DD? "... I have no expectation that the AA will regain £3+ territory... but I was speculating on a possible recovery to ... around 250p."IA - there is not much to add to Games' excellent and comprehensive review of the main business issues, positive and negative. But I would add that I think you CAN analyse both the business and the share price... albeit the latter is always a more difficult, capricious entity to assess. And don't forget, these are always two distinct entities - albeit somewhat related - and no more so than with AA!So to address your original premise, as above... the market was happy enough to pay 250p for the stock, a mere month ago... and around 300p less than a year ago, and 400p or so within a couple of years. But what has really changed, in fundamental "value" terms?The sudden dismissal of the EC was an ugly surprise, and the market never likes them... but it is surely 'neutral' in value terms? Of course, we don't know what was said to compel him to lash out, and that might just make a difference... but absent anything relevant there, I actually think it an incremental positive, in expediting a change from what was a sub-optimal corporate governance situation.You had the accompanying profits warning - and the market definitely hates double whammies! But it was a pretty modest warning in overall impact, and the issues look mostly ones of timing and technical accounting treatment... most importantly, there was no suggestion of deterioration in core trading conditions - if anything the reverse, with confirmation that core membership figures (the real driver of cash flow and value here) have remained stable (actually, edging up) after a longer period of decline. There has also been little change in the long term outlook for interest rates - absolutely critical to the equity story here. If anything, it has got a bit better... the recent concern over surging inflation leading to higher interest rates has quickly dispersed, and long term rates have actually ticked down (U.K. 10yr gilt yield now around 1.05%, having been holding up around 1.2-1.3% a few months back). So all in all, I look at the fundamental picture as concerns the AA - over the last month, and the last year, say - and I see little change at all, if anything, arguably a small positive movement. It is largely issues of sentiment behind the recent plunge - and while these can persist, they can also quickly swing. So I see no reason why 250p - and even 300p or more - cannot be regained in fairly short order, with any kind of catalyst for a sentiment upturn. And given the high gearing, you could be talking about quite a bit more than that, further out... as long as core trading holds up, and as long as the prevailing interest rate outlook holds. A new CEO is both an opportunity and a potential risk - he/she may have their own ideas about the capital structure, dividend policy, etc... but any kind of subsequent period of stability and delivery could be very good news indeed. For the stock first, and business second... always remembering the distinctions between the two, as I think you have to do here - in particular.
