Buy Accident Exchange – ACE

I have recently taken a position in Accident Exchange, a company that specialises in replacement vehicles to motorists involved in accidents and specialising in the prestige end of the market.

Its fundamentals are as follows:

PE: 3.1
Yield: 5.3%
Div Cover: 6.1
Price/Book: 0.6

Directors hold a high proportion of the company, always a good sign.

So, very cheap. In the last year or so the share price has 260p all the way down to 56p. This has been driven by a series of court cases that the company has had against the insurers (who don’t like their business), all of which have now been settled in ACE’s favour

Some time this month the company shall release an RNS which hopefully will show an improvement, currently the price is factoring in the worst so I am hopeful any reasonably positive news could have a substantial effect on the price. Also, this stock should be fairly recession proof (people always crash cars, regardless of how the economy is doing).

It is worth pointing out that ACE has a huge amount of stock out on loan at the moment ie people shorting. While this may not sound good, it leads to the possibility of a ’short squeeze’ whereby, in this case, some positive news causing an increase in price will cause some of these shorters to buy back at a higher price. This forms a feedback loop which can result in a huge surge in the share price.

Another point I have heard is that possibly it could be the insurance companies shorting the share. These companies don’t like ACE as it is them who have to pay, what they see, are putative fees for car hire. This may well not be true, but worth baring in mind.

HelpHire, another company in this sector is on a PER of around 8.5, which would put ACE at around 130p.

Paulypilot has posted extensively about this company(1, 2, 3 ), and if you are interested there is also a ADVFN board here.

I’m in at 59p.