Aston Martin Lagonda – Back On Track

If you have not ordered your DBS770 Ultimate yet – sorry you have missed out.

The most powerful production from Aston Martin Lagonda Global Holdings (LON:AML) was unveiled in January this year and sold out all 499 examples.

If you did get your name down, then you will be pleased to know that deliveries are expected to begin in Q3 this year.

Recession-Proof Luxury Sector

Aston Martin’s core customer base is untouched from income pressures and tough inflationary conditions.

The whole luxury car sector, taking in Bentley, Porsche, Ferrari and Rolls Royce, is certainly seeing a strong pick-up in sales.

Recent Q1 Results

The Q1 results for Aston Martin to the end of March showed a 27% uplift in revenues to £295.9m (£232.7m), while its adjusted EBITDA was 24% better at £30.2m (£24.4m).

The adjusted operating loss was 39% higher at £47.8m (£34.3m). Net debt in the first quarter was reduced 9% to £868.1m (£956.8m).

The transition of the group’s portfolio, led by the critically acclaimed DBX707 – the world’s most powerful luxury SUV – is accelerating with the first of the next generation of sports cars coming off the production line later this month.

The company is also on track to deliver a number of ‘thrilling’ new Specials in the second half of the year.

While its new portfolio will also bring significant improvements in profitability, with all new models, from the DBX707 onwards, continuing to target a 40%+ gross margin.

Executive Chairman Lawrence Stroll stated that:

“2023 is set to be one of the most exciting years in Aston Martin’s history. In addition to celebrating our 110^th anniversary and our exciting line-up of Specials, it will also see the start of our next generation of sports cars which will truly reposition Aston Martin as an ultra-luxury performance brand and enhance our growth.

Since the start of the year, we have continued to see strong demand across our product range, with our current range of sports cars essentially sold out for the year. The DBX707, the first car developed under my leadership, continues to receive broad media acclaim and, with a growing number incredibly satisfied customers, is strengthening the DBX orderbook in all our major markets, as well as our overall financial performance.

Our partnership with the Aston Martin Aramco Cognizant Formula One®️ team has continued to drive significant brand awareness and growing demand from a new generation of customers, further amplified by its strong start to the season.”

The Group Operations

Tracing its roots back to 1913, this group was founded by Lionel Martin and Robert Bamford, and from 1947 was led by David Brown.

Over the years it has endured seven bankruptcies and transformed its operations substantially.

Today the company designs, creates, and exports cars.

The company’s activities take in the design, development, manufacture, and marketing of vehicles, as well as the sale of parts, servicing, and automotive brand activities.

The group manufactures its sports cars range in Gaydon, Warwickshire while its luxury DBX SUV range is manufactured in St. Athan, Wales.

Its products in the ultra-luxury automotive space, include GT, Sport, Super GT, SUV, mid-engine supercar, mid-engine hyper car, and sedan.

Its current model ranges include the Vantage, DB11, DBS, DBX, the Aston Martin Valkyrie, and Valhalla.

Sales per Business and Region

In the year to end December 2022 the group saw its net sales rise to £1.382bn (£1.095bn).

The group reported wholesale volumes rose 4% to 6,412 vehicles last year and an 18% increase in core selling prices to £177k, which helped lift revenue 26%.

On a per Business basis, its sales split down – Vehicles £1.29bn (93.5%), Parts £70.8m (5.1%), Brands and Motorsport £9.9m (0.7%), and then Servicing of Vehicles £9.3m (0.7%).

On a per Region basis, the Americas took £401.8m of sales (29.1%), the UK £366.0m (26.5%), Asia Pacific £353.5m (25.6%), while the Rest of Europe, Middle East and Africa accounted for £260.2m (18.8%).

A Strong Outlook

The group has declared that it is remaining on track to achieve its target of some 10,000 wholesales, aligned with its ultra-luxury strategy.

In addition, it is also expecting to deliver its medium-term financial targets of about £2bn revenue and around £500m adjusted EBITDA in 2024/25.

Estimates for the number of wholesales this year is around 7,000 units (6,412).

The launching of new models will certainly give those numbers a boost.

The Equity

There are 698.76m shares in issue.

The larger holders, apart from Executive Lawrence Strulovitch (Stroll) with 28.4% of the equity, also includes Shu Fu Li (Chairman of Volvo Car AB) with 7.60% and the Mercedes-Benz Group with 1.95%.

The Government of Saudi Arabia holds 18.7% of the shares.

Other holders include Union Bancaire Privee (3.14%), Invesco Advisers (1.91%), Hargreaves Lansdown Stockbrokers (0.99%), UBS Asset Management Switzerland (0.82%), Investec Wealth & Investment (0.77%) and Clearstream Banking (0.74%).

Consensus Opinion

For the current year to end December 2023 the consensus view is that the group will see its net sales increase to £1.623bn (£1.382bn), while its pre-tax losses will more than halve to £229m (£495m loss).

Estimates suggest that the 2024 year will see £1.804bn sales, with the pre-tax losses easing some 63% to only £83.8m.

It is in the 2025 year that it is expected to lift sales up to £2.028bn and report pre-tax profits of £51.5m, worth 9p per share in earnings.

Looking ahead, revenue is forecast to grow 11% p.a. on average during the next 3 years, compared to an 8.7% growth forecast for the Auto industry in Europe.

My View – Setting A 265p Target Price

The group’s shares, which touched 307p in early March, have since fallen back to a recent low of 210p before closing last night at 213.5p.

Although it is going to take another couple of years to see positive profitability, I do believe that this quality car maker is something special.

Its market capitalisation at £1.523bn is way out of my normal criteria, but I forecast that the group’s shares are set for another big run upwards in 2023.

The group’s Annual General Meeting will be held next Wednesday, which could prove to be an excellent time to give out some bullish corporate news.

I now set a Target Price of 265p for the shares.