March 28, 2017 / 8:11 AM / 6 months ago

UPDATE 1-AA core profit steady, new business up

(Adds detail, CEO comment, analyst, share price)

LONDON, March 28 (Reuters) - Motoring group AA posted a full-year core profit of 403 million pounds ($506 million) on Tuesday, steady from the previous year and in line with expectations, supported by growth in new business.

AA, which offers roadside recovery and motor insurance services, saw a 14 percent growth in new business volume for the year ending Jan. 31, 2017, it said in a trading statement.

Trading earnings before interest, tax, depreciation and amortisation were up 0.2 percent from a year earlier and in line with 403 million pounds forecast on Thomson Reuters I/B/E/S.

The group’s trading revenue rose 1.6 percent to 940 million pounds, below 953 million forecast.

Operating profit fell 4.4 percent to 284 million pounds.

Bob Mackenzie, executive chairman at AA, told Reuters an increased number of breakdown call-outs had an impact on profits, although in the longer term call-outs tended to increase customer retention.

Mackenzie said an increase in insurance premium tax, which will rise again in June to 12 percent, a doubling of the rate from two years ago, was “inequitable, invidious, insidious, you name it, all of those”, but AA had not raised insurance premiums on top of the tax rises.

AA started underwriting insurance a year ago, in addition to providing broking services.

The firm said it had seen a positive start to the 2018 financial year, helped by a rise in insurance customers.

Cenkos analysts reiterated their “buy” rating on the stock, saying “management’s outlook points to further positive momentum”.

Mackenzie said its recent entry into the sector meant it was not much affected by an unexpectedly sharp cut to the discount rate used to calculate lump sum payments in personal injury claims. The discount rate cut will push up the size of the payments.

AA’s shares were trading at 262.5 pence per share at 0851 GMT, up 2.6 percent and compared with a steady FTSE mid-cap index.

AA said it would pay a final dividend of 9.3 pence per share, up 3.3 percent from a year earlier.

$1 = 0.7972 pounds Reporting by Carolyn Cohn; Editing by Dasha Afanasieva and Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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