AA PLC

AA Plc (LON: AA) is a United Kingdom-based company which operates in the roadside and insurance businesses. The company is a leader in the UK roadside assistance market and offers personal and business partnerships, driving lessons training within the Driving Services division.

On 11^th February 2020, the company will announce the Pre-close trading update.

Trading Update (as on 11^th December 2019)
In the financial year 2020, the company expects EBITDA and free cash flow to be in line with market expectations.  Due to positive operational momentum in FY 20, the company intends to buy back bonds already issued in the market. In addition to this, it also intends to pursue redemptions of a range of debt issues. The company will publish its full-year results for FY 2020 on 31 March 2020.

Financial Highlights (for the six months ended 31 July 2019)
In the first half of the financial year 2020, due to the steady rise in the performance of both the segments, trading revenue grew by 2.3 per cent to GBP 491 million as compared with GBP 480 million in the first half of FY2019.

Operating profit increased by 3.4 per cent to GBP 120 million in H1 FY2020as compared with the corresponding period of the last year. While reported profit before tax increased to GBP 42 million from GBP 28 million in H1 FY2019, adjusted profit before tax decreased from GBP 50 million in H1 FY2019 to GBP 46 million in H1 FY2020. Basic earnings per share increased by 44.7 per cent to 5.5 pence and adjusted basic earnings per share fell to 6 pence from 6.5 pence in H1 FY2019. The stock’s annual dividend yield was 4.3 per cent.

Share Price Performance

Daily Chart as at December-12-19, before the market closed (Source: Thomson Reuters)

On 12th December 2019, AA PLC shares were trading at GBX 52 at the time of writing before the market close (at 08:15 AM GMT), up by 2.97% against the previous day closing price. Stock's 52 weeks High and Low are GBX 99.91/GBX 40.50. The company's stock beta stood at 1.94, reflecting the higher volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
In the Insurance business, the company persists to generate robust rates of profitable policy progress, and also anticipate this to continue in the second half of FY2020.In the Roadside business, personal membership base has been stabilised by the company and are confident that in 2020 it will progress. Fuelled by a growing number of cars and a relatively resilient economy, the roadside recovery market has seen a steady expansion, and AA is the largest player and is well placed to take advantage of the emerging new trends. In 2020, the company expects free cash flow and EBITDA to be in line with the market anticipations.

Considering the continued positive performance, the group announced that it proposes to use some of the cash generated to tender for outstanding bonds in the market or buyback.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from £925 million in FY16 to £979 million in FY19. Compounded annual growth rate (CAGR) stood at 1.91 per cent.

Based on the decent prospects and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 50.50 (as on 11 December 2019) with a lower double-digit upside potential based on 3.90x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.).

Taylor Wimpey PLC

United Kingdom-based Taylor Wimpey PLC (LON: TW) is one of the largest residential housing developers, with a small operation in Spain as well, which builds a wide range of properties, from one- and two-bedroom apartments to six-bedroom detached houses, with a broad price range including both private and affordable homes. The company operates from 24 regional offices across England, Scotland and Wales. The operations of the group are differentiated in four geographical segments, namely London & South East, North, Central & South West, and Spain.

On 14^th January 2020, the company will announce the trading update.

Trading Statement (as on 13^th November 2019)
In line with the expectations driven by an industry-leading sales rate, the company reported that it was on track to deliver the full-year 2019 results according to its guidance, as the company continued to see good demand for homes and have built a very strong order book.

The company operated on an average of 252 outlets in the year to date(2018: 274), and driven by improvements in both product availability and build capacity and high-quality sites, sales rates for the year to date have remained strong at 0.96 sales per outlet per week (2018: 0.81).

Subject to the timing of conditional land purchases and after the payment of approximately £600 million of dividends to shareholders in 2019, the company expects to end 2019 with a net cash balance of around £500 million (31 December 2018: £644.1 million), while land buying conditions remained stable in the second half of the year.

Share Price Performance

Daily Chart as at December-12-19, before the market closed (Source: Thomson Reuters)

On 12th December 2019, Taylor Wimpey PLC shares were trading at GBX 175.25 at the time of writing before the market close (at 08:15 AM GMT), up by 0.49% against the previous day closing price. Stock's 52 weeks High and Low are GBX 180.51/GBX 121.17. The company's stock beta stood at 0.99, reflecting almost the same volatility as compared to the benchmark index.

Conclusion
The company reported that its order book stood at approximately £2.7 billion(2018: approximately £2.4 billion), an increase of 12.5%, indicating a good ability to manage short term market uncertainty, while the market continued to benefit from strong underlying demand, low-interest rates, a competitive mortgage market and the Help to Buy scheme. The housing market conditions have remained resilient despite wider political and economic uncertainty, though the company has experienced some increasing customer caution, particularly in the higher-priced markets of London and the South East.

The company is on track to deliver 2019 financial year results in line with the anticipations, due to an industry-leading sales rate. The company is focused on the delivery of the build quality and highest service to the clients and investing in the future capacity and sustainability of the business.

The company continued to see decent demand for the homes in the second half of the current year. Looking ahead, the financial position and cash generation are very robust, and the company reiterated the commitment to return 610 million pounds by way of total dividend to shareholders in 2020.

Based on the decent prospects, we have given a "HOLD" recommendation at the closing price of GBX 174.70 (as on 11 December 2019).

*All forecasted figures and peers have been taken from Thomson Reuters.

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