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Aston Martin Lagonda - better than expected first half

Aston Martin's first half revenue rose 25% to £677.4m, with a 12% increase in average selling price to £184,000.

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Aston Martin Lagonda's first half revenue rose 25% to £677.4m, with a 12% increase in average selling price to £184,000. This was better than expected. The current range of GT/Sports cars is sold out ahead of new launches and the group said it's on track to meet its target of £2.0bn by 2024/25.

Underlying operating losses of £86.7m were 19% wider than last year, partly reflecting higher spending on the development of new models and its electric car - which is due in 2025.

There was a free cash outflow of £218m, down from £234m while net debt rose to £846m from £766m.

The shares rose 1.3% following the announcement.

View the latest Aston Martin share price and how to deal

Our view

Freshly issued forward guidance for 2027/28 and recent strategic partnership announcements have been encouraging. Overall, the market's been pleased with recent progress at Aston Martin. Supply and logistics pressures have eased somewhat and volumes have risen again. Altogether, that means the group thinks free cash flow is still around the corner.

Something that affects free cash flow is capital expenditure, and this is expected to rise because of the ongoing transition to electrification and rising prices. It's still unclear exactly when inflation is going to come down meaningfully. This isn't enough to derail Aston Martin's plans, but it's one to keep in mind.

Production delays have been especially painful. The bulk of cash only comes in when cars are delivered. So we're keen to see continued progress on this front - it's too soon to say issues have been cured, even if problems are easing.

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.

The revamped strategy is also being pushed forward. The strategy shifts have left Aston Martin in a slicker position and included a complete overhaul of the way it 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. These efforts don't come cheap though, and Aston Martin has already come cap-in-hand to investors, so there's pressure for things to work out.

The type of person that buys a new Aston Martin is less likely to be hindered by economic uncertainty. We're relieved to see volumes picking up, suggesting that underlying demand is strong, despite macro pressures and even though Aston Martin is pushing its selling prices higher.

We're also aware that brand positioning could insulate it somewhat from the shift away from petrol, but electric is the direction of travel for automakers. The first hybrid cars are pencilled in for 2024 release, with a full battery Aston expected a year later. It'll take until 2030 for a full range of electric vehicles to be available.

Management's targeting annual revenue of £2bn, with underlying cash profits of £500m by 2024/25. That's looking to be broadly achieved a year early, with a surprise on the upside possible for 2025 if the current momentum continues.

Near-term, the group faces some challenges if it wants to come good on its promises. The execution of the electrification strategy will be a key driver of long-term success, and recent strategic partnerships show the group's putting the building blocks in place. While we're cautiously optimistic about Aston Martin's outlook, we've yet to see whether customers will come along for the ride.

Environmental, social and governance (ESG) risk

Most of the auto industry falls into the medium-risk category in terms of ESG. Product governance, particularly around safety, and carbon emissions from products and services are key risk drivers. Business ethics, labour relations and direct carbon emissions are also contributors to ESG risk.

According to Sustainalytics, Aston Martin's management of ESG risks is average. ESG issues are overseen by the board and overall disclosure is strong. There's a robust environmental policy in place, with a commitment to net zero for scope 1 and 2 emissions by 2030 and scope 3 emissions by 2039 and has interim targets in place. However, AML doesn't divulge sustainability-linked revenue and environmental impact isn't systematically considered in the design phase. Although some of AML's facilities are externally certified, scope is unclear and its product and safety programme needs improvement.

ESG data sourced from Sustainalytics

Aston Martin Lagonda's (AML) key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 27th July 2023