Recovery for AA shares as fears over debts eased by ratings giant
THE AA’S investors and lenders were finally given something to cheer after ratings giant S&P soothed fears over the embattled breakdown company’s mounting debt pile.
New boss Simon Breakwell raised eyebrows in February when he outlined more investment in a car-crash strategy revamp that sent its shares reversing 28pc in a single day.
S&P, the credit ratings agency, said that management’s attempt to spend its way out of the crisis would not put too much strain on the AA’S stretched balance sheet.
Leaving its BBB- score on the roadside rescue firm’s Class A notes intact, it predicted that any deterioration in the AA’S finances would be “transitory” and “not materially” impact its view on the company’s risk.
S&P admitted that the “significant” investment programme will hit profitability but added that sinking funds into technology and increasing roadside car patrolling should reduce its reliance on third-party garages when demand surges.
After the value of its corporate bonds plunged following February update, the report restored confidence in the AA’S debtholders, lifting the price of its benchmark corporate bond 3pc.
The heavily-shorted company dropped out of the FTSE 250 earlier this year but investors piled in on S&P 500’s brighter outlook. The AA’S shares were boosted to their highest level since the strategy update, a 6.5p, or 6.2pc, gain to 112p.
Elsewhere, oil prices capped off their best week since last July as investors took a peek behind the curtain at Saudi Aramco ahead of its blockbuster $2 trillion (£1.4 trillion) IPO.
The Saudi Arabian national oil company’s accounts showed that its net income dwarfed rivals’ at $33.8bn in the first half of 2017 and that it carries very little debt, just $1.3bn, according to Bloomberg.
Saudi Aramco is expected to sell off 5pc of the company in a huge IPO to help fund the kingdom’s efforts to diversify its economy away from oil.
The kingdom indicated earlier this week that it wants prices to move nearer to the $80 per barrel mark as it seeks a smooth landing for the mega float.
Brent crude inched towards Saudi Aramco’s $80 goal yesterday, climbing as much as 1pc to $72.74, a fresh three-year high. Troubled tech firm Micro
Focus built on gains made on Thursday after influential activist investor Elliott Advisors took out a stake in the firm, lifting it a further 40.6p to £12.99.
Shire shares sharply tumbled in intraday trade before recovering to a 79p loss at £36.07 amid City chatter that Takeda’s bid might have run into trouble.
Ultra Electronics jumped 58p to £14.03 after Berenberg analysts took the beleaguered defence company off its “sell” list. It argued that the environment is improving after it weathered a “difficult few months” and the market has now priced in “Ultra’s inherent risks”. Royal Mail’s share rally came to a halt after RBC Capital Markets downgraded it to “underperform”, weakening it 10p to 560.8p. The FTSE 100 inched 6.22 points higher to 7,264.56 after tech giant Sage’s 8pc shares slump offset miners recovering ground lost in the market’s trade-war jitters.