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Aston Martin Lagonda - trading as planned

Sophie Lund-Yates, Equity Analyst | 10 January 2022 | A A A
Aston Martin Lagonda - trading as planned

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Aston Martin Lagonda Ord 10p

Sell: 544.20 | Buy: 547.00 | Change 3.60 (0.67%)
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First quarter revenue rose 4% to £232.7m, reflecting price increases. This offset the expected decline in volumes, as the group prepared for DBX707 production and supply chain issues persisted.

There was a greater proportion of Specials (custom made cars) sold, which are higher margin. Together with cost cuts, meant underlying cash profits (EBITDA) rose 18% to £24.4m.

In 2022 Aston Martin continues to expect underlying cash profits to increase by 50% as it sells over 6,600 vehicles.

The group also announced that a former Ferrari CEO, Amedeo Felisa will take over as CEO.

The shares rose 2.3% following the announcement

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Our view

Aston Martin's on track to deliver on its full year targets, despite getting off to a slow start. Vehicle sales fell short of the 1,650 needed, which means the group's upcoming DBX launch will need to land well with customers and accelerate sales throughout the rest of the year.

A fresh pair of eyes with ex-Ferrari boss Amedeo Felisa taking the wheel as CEO should breathe life into the company after years of underperforming. He'll step into a leaner organisation, thanks to ''Project Horizon,'' which aimed to cement the brand's image as a top-tier vehicle maker and improve efficiency by offering made-to-order cars.

The strategy shift included a complete overhaul of the way Aston Martin sells cars. The group ran down dealer inventory levels, helping demand outpace supply. This supported stronger pricing and added to the cachet that comes with buying an Aston Martin.

The group's also focused on selling higher-margin Specials. Customers sign up and pay a deposit for these rare models before they're built, allowing for tighter working capital control. The cars have also become cheaper to make thanks to efficiency improvements. Demand for Specials is also a bellwether for the group's success repositioning itself at the top of the luxury car market. In order to charge £150,000 for a car, the owner needs to feel like James Bond driving it.

So far, it seems the group's doing just that with 19 Specials sold in the first quarter compared to 1 last year. However if Aston Martin's to best last year's Specials sales, it will need to pick up the pace.

Longer-term, we have some concerns.

Management's targeting annual 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 - 52% more than what's expected in 2022. We suspect that will include a substantial proportion of electric vehicles, an area the group's been slow to develop. The first hybrid cars rolled off the showroom floors in China during the fourth quarter, but fully electric cars won't materialise until 2030.

Brand positioning could insulate it somewhat from the shift away from petrol, but electric is the direction of travel for automakers. The group's partnership with Mercedes enabled the group to bring EVs to market, but we worry buyers won't be wowed by a Merc engine in Aston Martin clothing.

Remaining top-of-mind among its customers is expensive, and with free cash flow still in the red, Aston Martin's debt pile continues to swell. Liquidity isn't an immediate concern, but the debt will make it difficult to weather any unforeseen challenges.

Near-term, the group looks likely to deliver on its promises. But the execution of the electrification strategy will be a key driver of long-term success, and we've yet to see whether customers will come along for the ride. Dragging around an eyewatering debt pile makes it tricky to manoeuvre, particularly as interest rates and inflation continue to rise.

Aston Martin key facts

  • Price/Sales ratio: 0.90
  • Average Price/Sales since listing: 11.14
  • Prospective dividend yield (next 12 months): 0%

All ratios are sourced from Refinitiv. 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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Full Year Results

First Quarter Results

Wholesale volumes fell across all geographical regions, with double digit declines in the Americas and Asia Pacific due to transportation delays. The number of vehicles sold in Europe and the UK fell by 5% and 3% respectively.

SUVs fell the most, from 746 to 421 while Sport and GT models rose by 22% and 20% respectively. The number of Specials sold rose from 1 to 19. The DBX made up 37% of cars sold, but that's expected to rise to over 50% of wholesales following the DBX707 launch in the second quarter.

The average selling price, excluding Specials, rose to £151,000 from £149,000. Total ASP, which includes Specials, rose from £151,000 to £181,000.

The group had a free cash outflow of £25m, up from a £24m inflow last year, reflecting increased investment. Net debt rose from £892m to £957m.

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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.


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