Aston Martin issued an unexpected profit warning as 2024’s production guidance has been trimmed by 1,000 units. This comes as supply chain disruptions have seen a growing number of late-arriving parts. Demand in China has also been weak as it continues to wrestle with its own economic challenges.
As a result, expectations for underlying cash profit (EBITDA) margins have been downgraded from the low 20s to the high teens. This means full-year underlying cash profits are set to be below last year’s level.
Despite material improvements compared to the first half of the year, the group no longer expects to turn free cash flow positive in the second half.
All targets for 2025 remain unchanged.
The shares fell 14.9% following the announcement.
Our view
Aston Martin issued an unexpected profit warning as production volumes look set to land 1,000 units lower than previously expected. That’s seen full-year profit and free cash flow guidance downgraded. The news wasn’t received well by markets, with the market cap taking a double-digit hit on the day.
The group’s not alone in its struggles though, and the demand outlook for some other automakers is much bleaker. Aston Martin’s high price point arguably offers it some level of protection from general auto trends, given its buyers aren’t typically short of cash.
The higher price point stems from a shift in focus towards selling more Specials, which retail at a much higher value than its core offering. Thanks to efficiency improvements, the cars have also become cheaper to make, which has provided some relief to profitability.
While we're supportive of Aston Martin's enviable brand and product prowess, there are some things to be aware of.
There’s no getting around it, the high debt level is a real problem. It makes it difficult to obtain additional debt financing should demand slip and the group run into trouble. It refinanced £1.15bn of debt on better terms earlier this year, but the new debt still carries double-digit interest rates. This shows that its lenders need to be compensated heavily for the high level of risk they’re taking on.
Free cash flow has not improved as fast as expected this year, which could spell further trouble if the group runs out of cash to meet these obligations. Improving cash generation and getting debt to a more comfortable level needs to be the key focus. It’s an area we’ll be tracking progress closely, and we wouldn’t rule out further disappointments down the road.
We're also aware that brand positioning could insulate it somewhat from the shift away from petrol, but electric is the long-term direction of travel for automakers. This transition to electrification and rising prices means capital expenditure is on an upward course. The group’s also been spending big on marketing. That’s a natural step when you’re trying to reposition a brand like AML, but we need some proof that money’s being spent to grow market share, rather than hold onto it.
The group faces challenges if it wants to convince markets it can keep 2025 targets on track. Given the weak balance sheet, its new models must be blockbuster hits to keep the necessary cash coming in the door. The valuation is likely to come under more pressure if there are further supply and demand disruptions, and there’s no dividend on offer to reward investors for their patience.
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.
Aston Martin Lagonda key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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 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.