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Aston Martin Lagonda - supply delays feed into wider losses

Aston Martin Lagonda's wholesale volumes rose 4% to 6,412 vehicles last year, in-line with revised guidance.

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Aston Martin Lagonda's (AML) wholesale volumes rose 4% to 6,412 vehicles last year, in-line with revised guidance. This included 89 higher-margin Specials, down from 98. Volumes remained flat in all regions apart from Europe, Middle East and Africa, excluding UK, where there was a 19% uplift. An 18% increase in average selling prices, excluding Specials, to £177,000 helped overall revenue rise 26% to £1.4bn.

The group said it was unable to meet demand in the earlier parts of of the year because of supply chain and logistics disruption. Performance increased significantly in the fourth quarter.

Costs continue to outpace revenue, and underlying operating losses widened to £141.8m from £76.5m.

Despite turning free cash flow positive in the final quarter, there was a £298.8m outflow for the full year. Net debt stood at £765.5m.

Aston Martin Lagonda expects 7,000 wholesales in the new financial year, and believes these higher volumes will feed into improved profitability.

The shares rose 7.1% following the announcement.

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Our view

The market has 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.

While things are certainly moving in the right direction, we're keeping a close eye on things. Something that affects free cash flow is capital expenditure, and this is expected to rise because of rising prices. It's still unclear exactly when inflation is going 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.

Last year's £650m equity raise also pumped-up the war chest and helped push the revamped strategy 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.

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 in the final quarter, suggesting that underlying demand is strong, despite macro pressures.

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 will require Aston Martin to move roughly 10,000 vehicles per year - significantly more than the predictions for next year.

Near-term, the group faces some challenges if it wants to come good 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. Putting the fundraising proceeds to efficient use is the challenge from here, and that's not an easy task.

Aston Martin Lagonda's (AML)

  • Forward price/sales ratio (next 12 months): 0.85

  • Ten year book forward price/sales ratio: 1.2

  • Prospective dividend yield (next 12 months): 0.0%

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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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: 1st March 2023