Aston Martin Lagonda (AML) Ordinary 10p
HL comment (6 May 2021)
Aston Martin reported first quarter revenue of £224.4m, up 153% year-on-year, reflecting strong wholesale growth across all geographic regions, particularly in the Americas and China.
The group's operating loss narrowed to £15m from £68m, reflecting better trading, cost saving actions and a £6m currency tailwind.
Aston Martin is still expecting to sell roughly 6,000 vehicles this year with underlying cash profit margins in the mid-teens.
The shares rose 1.2% following the announcement.
After a car-crash stock market debut, luxury car-maker Aston Martin is pulling a U-turn with a strategy shift that's kicking into high gear. This year will be the first full one to benefit from the new strategy, dubbed "Project Horizon," which aims to cement the brand's image as a top-tier vehicle maker and improve efficiency by offering made-to-order cars.
That follows a year spent running down dealer inventory levels, a headwind offset by the launch of the DBX, Aston Martin's first-ever SUV. The vehicles currently make up over half of the group's sales, which bodes well for the launch of a DBX variant in the third quarter.
Efficiency programmes and the issue of new shares has helped the group lower its net debt substantially, though at £723m, it's still uncomfortably high. Still, we're encouraged by management's focus on shoring up the group's financials and paving a clear path to profitability - the group is targeting revenue of £2bn, with underlying cash profits of £500m by 2025/25. That will require Aston Martin to move roughly 10,000 vehicles per year - 67% more than what's expected in 2021.
In order to deliver, the group will need to continue building on strong demand from the US and China. While China is a few steps ahead of the rest of the world post-pandemic, both nations are at a crucial turning point in their Covid recovery. While the luxury market offers some insulation from economic disruptions, Aston Martin is dependent on a strong economic recovery. A downturn could push sales lower and derail the group's plans.
In a best-case scenario, Aston Martin fully executes on "Project Horizon," and turns a profit in 4 years' time. But a lot can happen in that time period and dragging around an eyewatering debt pile makes it tricky to manoeuvre. While we're encouraged by management's steps to improve Aston Martin's value proposition, we're not convinced there's a smooth road ahead.
Aston Martin key facts
- Price/Book ratio as at Dec 2020: 2.93
- Average P/B ratio since listing (2018): unavailable
- Prospective yield: 0.0%
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
Q1 Trading update
The group sold 1,353 vehicles, up from 578 in 2020. That reflected triple digit growth of 303% and 298% in the Americas and Asia Pacific Region respectively. Europe excluding the UK saw a 92% increase in vehicles sold while the UK delivered 19% growth despite "significantly disrupted dealer operations."
Strong growth in China coupled with a lower impact from financing helped the group's core average selling price (ASP) improve to £149,000 compared to £113,000 last year.
The group's new DBX SUV model made up the bulk of the sales (55%). With the Sport and GT contributing 23% and 21% respectively. Sport sales were up 66%, but GT sales declined 24%.
The group reported £24m in free cash flow compared to a £93m outflow at this time last year. That was the result of improved trading, a £49m working capital inflow and management's decision to spread out spending between quarters.
Net debt at the end of the quarter was £723m, marginally lower than it was at end of 2020.
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Previous Aston Martin Lagonda updates
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