AA’s ‘secret’ deals send share price into reverse
BREAKDOWN service AA has tanked after brokers released a report on the company, criticising a hidden cheap policy which could ‘cannibalise’ its revenues.
Last month it emerged that AA was offering secret half-price breakdown insurance to drivers within a 20-mile radius of their home. The company did not advertise this policy at all, but mentioned it to existing AA members when they called to cancel.
Analysts at Credit Suisse noted that only 27,000 of these £45 policies have been taken out, but added this could soar as more of AA’s 3.3m customers found out about the policy or tried to leave.
The broker said in a research note: ‘We believe this offering represents an innovative retention strategy from the AA.’
However, if more people were to move onto the cheap policy, it would be ‘cannibalistic to the personal membership revenue base’, the note added.
The Competition and Markets Authority is probing loyalty penalties across UK businesses, after complaints from customers who said they were paying more to stay with a service provider than new customers were charged.
With this investigation under way, Credit Suisse also said it wasn’t convinced that AA would be allowed to keep offering the significantly reduced service to leaving customers only, and might have to open it to all.
If it did have to begin advertising the cheap policy to all its members, this could see the number of people using it climb to around 115,000.
Shares in AA crashed 7.5pc, or 8.15p, to 100.25p, a day after they had risen 3pc on the back of a positive note from its house broker Peel Hunt. The analysts at Peel Hunt had said: ‘Under a strengthened management team, the AA faces an exciting future.’
Britain’s blue-chip index failed to maintain gains made earlier in the week, dropping 0.5pc, or 35.34 points, to 7,105.34 points, as mining giants slid following weak economic data from China.
Copper miner Antofagasta fell 4.9pc, or 39.8p, to 778.2p as growth in China’s producer price index – which measures the prices businesses receive for their goods and services – slowed.
This sign of weakness in China pushed down commodities prices, since the country is a major importer of raw materials. Fresnillo also skidded 4.7pc, or 42p, to 861p, and Glencore dipped 4.4pc, or 14.1p, to 303.9p.
David Madden, of CMC Markets, said: ‘There are continued concerns that China is slowing down, and this is driving the sell-off in natural resources.’
These worries over demand also weighed on luxury clothes designer Burberry. The British fashion house, which has been trying to pull younger consumers on side by selling limited-edition £290 T-shirts over social media and relies heavily on Asian buyers, was the FTSE100’s biggest loser as its shares fell 4.9pc, or 91p, to 1773.5p.
A hoard of miners also weighed on the FTSE250, which was further under pressure from oil companies.
The price of Brent crude oil slid below $70 per barrel, racking up losses of more than 20pc since its peak last month.
Traders have sent prices skidding on reports that Iraq may soon be adding more oil to the market, under pressure from President Trump to boost supplies. The US president has been urging allies to increase their oil output so it has room to curtail Iran’s exports.
But the lower price caused London-listed Tullow Oil to shed 6.7pc, or 14.6p, to 203.7p. Premier Oil was close behind, falling 6.3pc, or 6.65p, to 99.05p, and Cairn Energy dropped 6.1pc, or 12.6p, to 193.4p.