AA share price: what to expect from Q4 results

When is AA’s results date?

AA provides the market with a trading update for its fourth quarter (Q4) on 11 February. No official figures will be published, but the group may provide some numbers on trading over the previous three months, as it heads towards full year earnings later in the year.

AA’s results preview – what does the City expect?

Having seen the share price go from 400p following the inital public offering (IPO), to less than 100p in 2019, investors will be forgiven for hoping that some good news might be on the way for AA. But the interim figures back in September caused the shares to drop 13%, as higher expenditure and other operating costs hit performance.

The first half (H1) results were affected by a higher number of callouts during the winter, which boosted the number of customer callouts. Regulatory costs and greater competition continue to put pressure on margins. A 65% fall in pre-tax profit for H1 is not a pleasant figure for investors to reflect upon, and even the CEO’s positive tone was not enough to stabilise the share price.

AA shares are now a ‘bargain’, it must be said, at least on a purely valuation basis. At just 5.6 times forward earnings, they are well below the post-IPO average of 7.6 times. The shares were even cheaper in December, falling briefly below the five-times level. But there is little reason to be optimistic about the shares at present.

How to trade AA’s results

The volatility in AA’s shares is likely to continue, with an average move on results day of 7.2%. Traders should be prepared for a healthy dose of volatility when the results are released, with any suggestion of weaker performance likely to prompt another bout of selling.

How has the AA share price been performing?

Since the beginning of 2018, the share price of AA has nearly halved, indeed at its lows back in December the share price was down 60%. The stock has significantly underperformed the broader market, a reflection of concerns about the viability of AA’s business. AA’s shares, while a great target for the bears on a longer-term view, do have significant bounces. Even from the lows of December, the shares went from 66p to 85p, a gain of almost 30%. This rebound is probably another opportunity for sellers to step in, but anyone hoping that the lows of December would have been breached will have been disappointed so far.

Still, there is no sign of a significant turnaround yet, and with the fundamental backdrop still so poor it seems any rebound will be another selling opportunity.

AA share price – technical analysis

On the daily chart, it looks very much like the surge from the December lows will be another excellent selling opportunity, similar to that of October and November. The shares have a long way to go before the breach the 110p level and create a new higher high. This would also put it above the 200-day simple moving average (SMA) of 107p for the first time since September (although then its hold on this indicator was tenuous at best).

Any failure to move above the 110p level would be a lower high and thus another selling opportunity. In the near term, the target for any move lower would be 66p to start with. Once this support is broken we are in new all time lows territory.

The hourly chart is the crumb of comfort for bulls at present. The broader market bottomed out after Christmas, at least for now, and AA shares have been no exception. From 27 December the shares have gone from 68p to a high of 86p, and dips in the trend have been steadily bought. A series of higher lows and higher highs has been seen since the end of December, and it looks like a classic ‘rally into the news’ is underway.

The worry for the bulls is that this is merely a chance for the sellers to get in at a better price, and the downtrend on the daily chart continues to prevail. This is a strong bounce, but a short-term one.

Conclusion

AA is not currently a promising stock for long-term investors. It is cheap, but at 5.6 times forward earnings it is cheap for a reason, namely the structural changes in the insurance market and rising costs.

Meanwhile, for traders, it offers a chance both on the long and the short side. AA is a classic declining stock – the overall trend is down, but it has excellent short-term bounces. Careful use of risk management and an awareness of the overall trend mean that traders can play both sides.