Aston Martin Lagonda (AML) Ordinary 10p

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Aston Martin’s revenue fell 13% to £234mn in the first quarter. Despite a 1% increase in wholesale volumes to 950 vehicles, the revenue decline was driven by fewer deliveries of its Special models, which carry higher average selling prices.

Underlying operating losses widened by 13% to £65mn, reflecting the decline in revenue.

Free cash outflows reduced by £70mn to £120mn, helped by selling down inventories and the non-repeat of payments related to refinancing last year. Net debt rose from £1.0bn to £1.3bn.

Full-year guidance has been maintained. Aston Martin expects to deliver positive free cash flow in the second half and positive underlying operating profits over the full year.

The shares rose 1.3% in early trading.

Our view

Aston Martin’s losses widened in the first quarter due to pricing weakness. But full-year guidance has been maintained for now as management expects the launch of its Valhalla supercar later this year to help drive a return to profitability.

In the meantime, Aston Martin continues to burn through cash. To help shore up the balance sheet, previously announced deals are underway to raise over £125mn of funds. While that may not seem like a big amount in today’s world, it is nearly 20% of the group’s current market value.

We see scope for tariffs to cause further pain. Volume growth guidance has been wound back only marginally in response to tariffs. This looks a touch optimistic in our view, given that nearly 40% of its sales come from across the pond. With a track record of underdelivering, we wouldn’t rule out disappointments on this front as the year progresses.

The current high level of debt and the associated financing costs are also a big problem. Double-digit interest rates show that lenders need to be compensated heavily for the high level of risk they’re taking on.

To make matters worse, the group still isn’t generating positive cash flows. That could spell real trouble if it runs out of funds to meet these obligations. As a reminder, debt investors are in the driving seat when it comes to claims on assets if Aston Martin fails to meet scheduled debt payments.

Given the group’s lack of scale—it made only 6,030 cars last year—even a small reduction in volumes can have a big negative impact on profits and vice versa. Returning to profitability will require Aston Martin to grow volumes again, benefitting from the improved efficiencies that greater scale brings.

Hopes are also being pinned on selling more Specials, which are ultra-exclusive cars that retail at a much higher value than its core offering. These tend to be more profitable than the Core range, but if there are demand or production issues with the new Valhalla models, there’s a high chance that full-year targets get brought into question.

We’re quite concerned given the recent tariffs, struggling demand, and high rate of cash burn. While it’s already well below the long-run average, which could suggest upside potential if things go well, the valuation is likely to come under more pressure if volumes don’t pick up.

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 the carbon emissions from companies’ products and services are key risk drivers. Business ethics, labour relations and operational 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.

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.

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