Aston Martin Lagonda (AML) Ordinary 10p

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Aston Martin’s full-year revenue fell 3% to £1.6bn. Record average selling prices, a result of selling more high-end models, wasn’t enough to offset a 9% decline in total volumes.

Underlying operating losses widened by 4% to £83mn, broadly in line with revenue.

Free cash outflows worsened by 9% to £0.4bn. Net debt jumped 43% higher to £1.2bn, driven by recent debt issuance and continued cash outflows.

In 2025, volumes are expected to grow by a mid-single digit percentage, helping to deliver positive underlying operating profit. Free cash flows are also expected to turn positive in the second half.

Aston Martin also announced a 5% cut to its workforce. This is expected to bring annualised cost savings of £25mn, half of which will be realised this year.

The shares fell 4.7% in early trading.

Our view

Aston Martin had a tough 2024, issuing multiple profit warnings due to production delays with its new Valiant model. These delays saw the group remain loss-making over the year, and concerns remain as it continued to burn through cash.

To help keep the wheels turning, Aston Martin had to turn to investors twice last year for further funds, split fairly evenly between debt and equity. This brings several problems. Issuing new equity waters down existing shareholders’ ownership in the company, reducing their share of any potential future profits.

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.

In an attempt to stem the financial bleeding, Aston Martin is set to let go of around 5% of its staff. This is expected to bring annualised cost savings of around £25mn, with half of that figure to be realised this year. That’s only part of the puzzle though, as cost cuts can only be taken so far.

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.

An improvement in economic conditions could also help to reignite demand and improve Aston Martins's fortunes. But to a large extent, that’s outside of the group’s control.

We’re quite concerned given the weak balance sheet, 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 supply chain disruptions continue to delay production.

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.

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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