Simon Caufield presented his in-depth investment thesis on The Automobile Association (London: AA) at European Investing Summit 2017.

The Automobile Association, with a market cap of £1 billion and EV of $3.6 billion, is a high-quality business trading at 5.3 times Simon’s conservative estimate of normalized owner earnings. Founded in 1905, the AA is the UK market leader in the provision of roadside assistance and recovery services. It also acts as a broker for auto insurance (14% of revenue) and manages driving schools (7% of revenue). With a membership/subscription-based business model, revenue is highly predictable and cash-generative. The market is consolidated, with just three main players and high barriers to entry. Returns on capital are above 25%. Following ten years of private equity ownership, the business IPO’d in June 2015 and is two years into a three-year program to modernize the product and infrastructure, improve productivity, and pay down debt. This is masking the underlying profitability of the business. That’s why the shares trade at a low multiple of normalized earnings. Yet, the program is starting to work.

About the instructor:

Simon Caufield is Managing Director at SIM Limited, a UK-based investment firm. Simon founded the firm in 2007 after selling his stake in Nomis Solutions, a B2B enterprise software company he founded in 2002. Previously, Simon was a management consultant for more than a decade, including at Mercer Management Consulting. He also writes the “True Value” investment newsletter for MoneyWeek, a UK financial magazine. Simon has an MA in Engineering from Cambridge University.

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