I have never owned or - to the best of my knowledge - written about AA plc (AA.). Briefly last decade I was a member before an alternative breakdown service was bundled into my bank account but I remember thinking it was a bit of a rip-off back then. Obviously some people (Neil Woodford) did not think it was a rip-off and built up a large double-digit percentage stake before having to admit it was yet another mistake...
It must have been the 'efficient' (aka loaded with debt) balance sheet jumping off all of those regular monthly/annual subscriptions which attracted Neil but - in the real world - the shares have been falling like a stone since the highs of five years ago, standing at less than a tenth of their value back then and this is even after a doubling of the share price since March. To tweak an old expression, the AA is a hedge fund purporting to be a breakdown service with a cool £2.6 billion of debt and a thin sliver of £230 million-odd in market cap.
You learn to avoid such monstrosities typically earlier in your career but timing is everything and - of course - some super-clever whippersnappers purchase such crud in anticipation of a leftfield event, such as a mega debt refinancing off the back of better trading. Sometimes it happens and - God forbid! - this might be the case with the AA plc which announced a few days ago that it 'is in discussions with a number of parties in relation to a wide range of potential refinancing options, including the possibility of a cash offer being made for the Company'. For Neil W it is, correctly, too late for him to stage a Lazarus-esque comeback on this one, but other investors are agitating the company might potentially be sold too cheaply.
Plus ca chance. Every investor in a call option name such as this one is mega hopeful because if you tweak the cash flow generation here and refinance this and that there - at a time of ultra-low interest rates - you can prove almost anything, especially if oh-so-clever hedge fund style shareholders meet oh-so-clever private equity potential business purchasers. They really should sort all of this out in some upper-echelon club somewhere and let any shareholder plebs know their views when they are ready.
I can only imagine most long-suffering shareholders would be glad to be out of this one at something beginning with a '4' (rather than a '0') and then the oh-so-clever new private equity owners can see if their modelling is even partially spot-on or not. If it is moderately okay, then roll on a few years and maybe they can consider re-floating it and asking a Woodford-style figure to buy a bunch of IPO shares. Repeating history, eh? "The first as tragedy, the second as farce".
Filed under: AA plc, Versarien, gold, Walker Greenbank, Hammerson, Conroy Gold, InterContinental Hotels
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