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Aston Martin - on track to meet full-year goals

Nicholas Hyett, Equity Analyst | 28 July 2021 | A A A
Aston Martin - on track to meet full-year goals

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Aston Martin Lagonda Ord 10p

Sell: 1,530.00 | Buy: 1,535.00 | Change 51.00 (3.44%)
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Aston Martin sold 2,901 cars in the six months through 30 June, compared to 895 in the same period last year. Revenue rose 242% to £498.8m, reflecting increased volumes and strong pricing.

The group reported an operating loss of £38.0m, compared to £159.3m a year ago, helped by Specials deliveries (which are more profitable) and cost saving initiatives under Project Horizon.

Guidance for the full year was unchanged for a total of 6,000 vehicles sold and underlying cash profit margins in the mid-teens, excluding the impact of £15m in legal fees.

The shares were flat following the announcement

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Our view

After a car-crash stock market debut, luxury car-maker Aston Martin is pulling a U-turn with a strategy shift that's kicking into high gear. ''Project Horizon,'' which aims to cement the brand's image as a top-tier vehicle maker and improve efficiency by offering made-to-order cars, helped first half losses narrow considerably.

Dealer inventory levels have been successfully rebalanced, opening the door for strong growth through the end of the year. The group is on track to meet its goal to sell 6,000 vehicles this year, with over 50% of sales in the first half coming from the DBX, Aston Martin's first-ever SUV. This bodes well for the launch of a DBX variant in the third quarter.

Management's targeting revenue of £2bn, with underlying cash profits of £500m by 2024/25. That will require Aston Martin to move roughly 10,000 vehicles per year - 67% more than what's expected in 2021. We suspect that will include a substantial proportion of electric vehicles, and we've yet to see Aston Martin's offering on that front. The group's partnership with Mercedes to bring an EV to market is a step in the right direction, but we worry buyers won't be wowed by a Merc engine in Aston Martin clothing.

The group needs to build on strong demand from the US and China, but as the pandemic rages on we're mindful of potential economic headwinds to come. The luxury market offers some insulation from economic disruption, but a downturn could still push sales lower and derail the group's plans.

Longer term the group will hope its recently launched F1 team helps put some fuel into sales, burnishing the brand's already impressive image internationally. This will come at a cost though, and given the group's not yet profitable it could become more of a burden than a boon.

Plus, although net debt's come down from 2019 levels, it's still uncomfortably high and crept upwards over the past six months.

In a best-case scenario, Aston Martin fully executes on "Project Horizon," and turns a profit in 4 years' time. But a lot can happen in that time period and dragging around an eyewatering debt pile makes it tricky to manoeuvre. While we're encouraged by management's steps to improve Aston Martin's value proposition, we're not convinced there's a smooth road ahead.

Aston Martin key facts

  • Price/Sales ratio: 2.93
  • Average Price/Sales ratio since listing (2018): 13.45
  • Prospective dividend yield (next 12 months): 0%

Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture

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Half Year Trading Update

The DBX made up more than half of the cars sold, while Sport sales grew 137% to make up roughly a quarter. GT sales were flat and the group sold 20 Specials, compared to 1 last year.

The Americas, the group's largest market, saw car sales rise 277% to 1,056. Growth was strongest in Asia Pacific, up 444% to 811 units. Sales in Europe, Middle East & Africa rose 214% to 600, and lockdowns in the UK meant growth was the slowest at 58% to 434 vehicles.

With the rebalance of dealer supply for GT/Sports complete in the first quarter, Aston Martin saw its average selling price (excluding specials) rise to from £149,000 in Q1 to £151,000 in the second quarter.

Operating costs rose 26% to £179.3, reflecting increased depreciation and amortisation charges relating to the DBX and increased brand investments, including spend on the group's F1 racing team.

The group had a free cash outflow of £44m, an improvement on the £371m outflow in the prior year. That was driven by an improved trading performance and favourable working capital movements.

Net debt rose £65m from the start of the year to £792m.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.