Credit Suisse ups AA to 'neutral', says risk/reward balanced

The risk/reward for roadside assistance and breakdown cover provider and insurer AA is now balanced, according to Credit Suisse, which upped its rating on the stock to 'neutral' from 'underperform' and hiked the price target to 130p from 80p.

CS said the company's trading earnings before interest, tax, depreciation and amortisation guidance of between £335m and £345m is too low, which the bank forecasting £346m. In addition, it pointed to the fact that Standard & Poor's reiterated its debt rating and said this suggests AA will not default on its debt.

"This removes the risk around the ability to, and cost of, future refinancing," CS said.

In the longer-term, however, the bank continues to see structural headwinds and forecast personal membership numbers declining on the back of aggressive price competition and changing user demands.

On Tuesday, the AA reported annual profit in line with depressed expectations after a boardroom bust-up caused it to drop out of the FTSE 250.

Trading earnings before interest, tax and other items fell 3% to £391m in the year to the end of January, in line with company guidance from September. As expected, it slashed its annual dividend to 5p a share from 9.3p a year earlier.

At 1515 BST, the shares were up 4% to 138.95p.