Investment Column: RAC is too steady to set any pulses racing

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The Independent Online

RAC provides the consumer and business motorist with a huge range of services, from its famous breakdown assistance to driving instruction and vehicle leasing. The group's brands in these three areas are strong: RAC, BSM for driving instruction and Lex Vehicle Leasing. Elsewhere, its services include windscreen replacement, legal advice for drivers and import work for car manufacturers.

RAC provides the consumer and business motorist with a huge range of services, from its famous breakdown assistance to driving instruction and vehicle leasing. The group's brands in these three areas are strong: RAC, BSM for driving instruction and Lex Vehicle Leasing. Elsewhere, its services include windscreen replacement, legal advice for drivers and import work for car manufacturers.

The company's interim results were, by the chief executive Andy Harrison's own admission, steady rather than exciting. Underlying pre-tax profits were up 4 per cent at £44.9m and revenues climbed 6 per cent to £753m. The company will meet full-year forecasts.

Roadside recovery revenues were up 5 per cent but this was a significant slowdown from the 9 per cent enjoyed last year. RAC blamed this partly on a new computer system.

The RAC and its rival AA have maintained roughly the same market share for years, with the former sitting on 23 per cent of the sector while the AA has 33 per cent. But AA has been streets ahead in terms of exploiting its brand, with new financial services ventures.

The recent acquisition of the AA by private equity groups, Mr Harrison said, might well be followed by cost-cutting. With that would come a poorer service and therefore more potentially discontented customers to poach. It remains to be seen whether this analysis is correct.

RAC shares fell 6 per cent at 680p as the results failed to set any pulses racing. Earnings look set to continue to grow at unexciting levels and investors should seek thrills elsewhere.

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