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Aston Martin - ongoing supply chain issues dent performan

Aston Martin Lagonda's (AML) third quarter revenue rose 33% to £315.5m.

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Aston Martin Lagonda's (AML) third quarter revenue rose 33% to £315.5m. This was driven by a 28% increase in average selling prices to £189,000. Aston Martin stated that ongoing supply chain issues meant wholesale volumes only rose 3%, and these are down 4% in the year-to-date.

Higher costs outweighed the benefit of the increased revenue, meaning underlying operating profit losses widened to £55m from £29.1m.

Supply chain and logistics disruptions delayed the timing of deliveries, which resulted in a working capital outflow of £106m. This fed into a free cash outflow of £336m.

Net debt was around £60m lower than the start of the year at £833m. The group successfully completed its £654m equity capital raise in the period.

AML is "updating its outlook for 2022 to reflect impacts of new supply chain and logistical disruption". This includes lower wholesale volumes and increased costs. The conditions mean cash inflows and more normal working capital are only expected to appear towards the end of the financial year, at the earliest.

The shares fell 10.0% following the announcement.

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Our view

Aston Martin faces a delivery problem. Supply chain and logistics headaches are dragging on for longer than expected and that means volumes are dipping.

That has far reaching implications, not least on working capital. That sounds like accounting jargon, but essentially, Aston Martin's seeing the negative effects of delayed production. That's because the bulk of cash only comes in when cars are delivered.

The type of person that buys a new Aston Martin is less likely to be hindered by economic uncertainty, but we can't rule out some demand dips while things are so uncertain. Volume declines are painful for margins, and there isn't a clear idea of when the situation is going to improve.

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.

Aston Martin successfully raised over £650m from an equity raise recently, with the pumped-up war chest meant to help push the revamped strategy forward. The old strategy shift 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 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.

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 what's expected in 2022.

That's not out of the question, 4500 DBX units are expected next year with that expected to then push higher. The remainder's expected to come from refreshed front engine models due for release next year, which have performed well following previous revamps. On the face of it, demand for the GT and DBX ranges seems promising for now.

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 new cash hoard to efficient use is the challenge from here, and that's not an easy task.

Aston Martin 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: 2nd November 2022