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Aston Martin Lagonda - new mid-term guidance issued

Aston Martin Lagonda issued an update ahead of its capital markets day.

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Aston Martin Lagonda issued an update ahead of its capital markets day.

The group's on track to deliver its 2024/25 financial targets, which aims to deliver around £2bn in revenue and around £500m in underlying cash profit (EBITDA). The company expects to broadly achieve these targets in 2024 and, if current momentum continues, is likely to exceed them in 2025.

New mid-term financial targets were also issued for 2027/28. Revenue by this point is expected to reach around £2.5bn, with a gross margin in the mid-40% range. Underlying EBITDA's also expected to rise to around £800m by this time. And the ratio of net debt to cash profits is expected to fall to around 1x from the 1.5x being targeted by 2025.

Aston Martin plans to invest around £2bn over the next five years to fund long-term growth and the transition to electrification. This figure includes payments relating to Lucid Group which has recently become a strategic supplier of components in future models of high-performance electric vehicles.

The shares fell 3.0% 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 are easing and volumes are on the up. All together that means the group thinks free cash flow is 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 penciled 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 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.

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
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 27th June 2023