Proactive Investors - Run By Investors For Investors

Credit Suisse downgrades AA on fears Citizen Advice Bureau’s ‘super-complaint’ could have “material” impact

Analysts at the Swiss bank have three concerns in total: 1) The CAB’s ‘super-complaint; 2) a pricing discrimination investigation; and 3) the AA’s Local Driver Membership offer
aa breakdown cover
AA could be forced to offer better deals to long-time customers, Credit Suisse reckons

AA PLC (LON:AA.) was the worst performer on the FTSE 350 on Friday morning after Credit Suisse downgraded its recommendation for the motor insurance and roadside recovery company.

Analysts at the Swiss bank moved the stock to ‘underperform’ (a ‘sell’ note to you and me), while they have also chopped their price target by just over a third to 70p (from 110p).

The bearish note sent AA shares tumbling by 5.4% in late-morning trading on Friday.

CBA ‘super-complaint’

Chief among their concerns – they have three major issues in total – is a recent ‘super-complaint’ filed by the Citizen Advice Bureau to the Competition and Markets Authority.

The CAA criticised companies in a number of industries for taking advantage of loyal customers, who are paying “far more for a service” than new customers.

“The headline that causes us most concern is the CAB’s super-complaint which, although not referencing the Roadside offering, has a clear read across as we believe that loyal customers who stay with the AA for longer are paying significantly higher rates than new customers,” said Credit Suisse in a note to clients.

“With an average tenure of c.12 years and c.710k members having been with the AA for over 20 years, the implications of a negative CMA review could be material.”

The analysts add that they don’t expect corrective actions will be demanded right away, although they do think pricing will change to address the issues raised.

Other issues as well …

Their two other concerns are the Financial Conduct Authority’s pricing discrimination investigation and the “little known” AA Local Driver Membership offer, which they think “changes the risk profile” of the insurer.

Given the issues, Credit Suisse has cut its earnings per share estimates for the next three years by 2-14%. It now expects the AA to turn a pre-tax profit of £148.0mln in 2018, £98.4mln next year and £102.2mln the year after.

View full AA. profile View Profile

AA PLC Timeline

Related Articles

1536105601_cobalt.jpg
September 05 2018
During the completion of its phase 1 exploration program at Bujagali and associated infill sampling, M2 Cobalt discovered six additional large-scale anomalies with highly anomalous rock and soil samples
computing symbols in cyberspace
January 16 2019
Its team of computer scientists designs algorithms that will be used by high-frequency traders, scientists doing genetic research and pharmaceutical companies

© Proactive Investors 2019

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use