I believe that there will be a quick rally in the share price of this iconic luxury car maker after Tuesday morning’s announcement of the group’s Q3 results and the subsequent results comment.
Based in Gaydon, Warwickshire, Aston Martin Lagonda is the world’s only independent luxury car group with nearly 110 years of design and automotive excellence.
The Business
Founded in 1913 by Lionel Martin and Robert Bamford, today Aston Martin fuses the latest technology, time-honored craftsmanship and beautiful styling to produce a range of critically acclaimed luxury models.
The company designs, creates and exports cars which are sold in 54 countries around the world.
There are some 21 Aston Martin dealers in the UK, handling over 1,100 units a year.
In the Americas the company has 44 dealerships selling almost 2,000 units yearly.
The Asia Pacific region has 48 dealers, processing over 1,800 units per annum.
The final region covering Europe, the Middle East and Africa (but not the UK and South Africa) has a total of 52 dealers, which sell some 1,500 units a year.
The globally recognised brand encompasses a range of models including the Vantage, DB11, DBS, DBX and its first ‘hypercar’, the Aston Martin Valkyrie.
The company’s sports cars are skillfully crafted in Gaydon, while its luxury DBX SUV range is proudly hand-built in St Athan, Wales.
Purpose, Vision And Strategy
The group states that its purpose is to create vehicles with the ultimate technology, precision and craftmanship that deliver thrilling performance and a bespoke, class-leading experience.
Its vision is to be the world’s most desirable, ultra-luxury British performance brand, creating the most exquisitely addictive performance cars.
While its strategy is built upon its key strengths; brand, product innovation, sustainability and team – each of which are the pillars underpinning the group’s strategy and future growth ambitions.
Management Comment
At the end of July when announcing the group’s Interim Results to end June, Executive Chairman Lawrence Stroll stated that:
“Although we may only be halfway through the year, 2023 has already proven to be a remarkable year in which Aston Martin has shone brighter than ever…. we are now driving new levels of operational excellence to support our growth and deliver on our targets which focus on increasing value for each car we sell, aligned with the characteristics of a true ultra-luxury company.”
Outlook
In the previous three years the group’s sales revenues have risen from £611m in 2020 to £1.09bn in 2021, then up to £1.38bn last year.
In the same period of time the group’s pre-tax losses have gone from £466m in 2020, to a loss of £214m in 2021, then up to a much larger loss of £495m in 2022.
The second half of 2023, and especially Q4 2023, is expected to see the delivery of a number of new products across the ‘Core and Specials’ ranges, all with improved profitability.
In addition to the ramp-up of the already sold-out DBS 770 Ultimate, the group expects deliveries of the first of its next generation of sports cars – the DB12 Super Tourer – to have commenced in Q3.
The £1.69bn capitalised group has already given the market some guidance as to its potential performance for the whole of the current year to the end of December.
It is aiming to have sold some 7,000 units this year, against 6,412 units in 2022 at an average selling price of £201,000.
The group expects that its year-on-year expansion will be on an adjusted EBITDA margin of up to around 20%.
Corporate Targets
The group, which has confirmed that it remains on track to deliver its 2024/25 financial targets, aiming for some £2bn in revenue and £500m of adjusted EBITDA, believes that it will substantially achieve these financial targets in 2024 and, with continued strong momentum, expects that it is likely to exceed them in 2025.
It has also provided new mid-term financial targets for 2027/28, consisting of achieving a revenue of £2.5bn, with a gross margin in the mid 40s%, generating an adjusted EBITDA of £800m, upon an adjusted EBITDA margin of around 30%.
The Equity
Following three equity raises during the summer there are now some 795.3m shares in issue.
The largest holder is Lawrence Stroll’s Yew Tree Consortium, with 208.6m shares, some 26.23% of the equity.
Behind him comes one of China’s richest men, Shu Fu Li, boss of Geely Holdings, with 132.5m shares, 16.66% of the equity.
That position is closely followed by the Saudi Arabian Public Investment Fund with 16.40%, totaling 130.5m shares.
Mercedes Benz Group owns 68.2m shares, with an equity holding of 8.57%.
Other large holders include Invesco Advisers (8.57%), Union Bancaire Privee (2.76%), Invesco Asset Management (1.51%), The Vanguard Group (1.20%), Norges Bank Investment Management (0.79%) and Investec Wealth & Investment (0.68%).
Broker’s Views
The average consensus estimates, across eleven research analysts following the group, is for some £6.95bn wholesale volumes, with net revenue of £1.65bn, on a gross margin of 37.1%, producing an adjusted EBITDA of £305m, operating on an EBITDA margin of 18.5%, while the average estimate for adjusted earnings before tax show a £158m loss.
Three months or so ago, analysts at Barclays upped their Price Objective for the group’s shares from 300p to 375p, recommending an ‘overweight’ stance.
Around the same time Goldman Sachs suggested that the group’s new products will pave the way for a turnaround for its fortunes and accordingly they switched their recommendation from ‘Neutral’ to ‘Buy’.
At the end of August Jefferies noted that the group’s operating outlook appeared more encouraging than ever, then lifted their view on the group’s shares from ‘Hold’ to ‘Buy’ while raising their Price Objective from 300p to 420p.
My View – A New Target Price Of 275p
The group’s shares have been as low as 88p and up to 396p in the last year.
I have written about the company several times over the last few months, having first Profiled the company and its potential in early May, when its shares were 213.5p, setting a 265p Price Objective.
Within a day of that write-up the shares fell to 202p, before putting on a 30% gain within the following two weeks.
By the end of July, some ten weeks later, they peaked at 396p, but that was just before a round of various fundraising’s helped to boost the group’s balance sheet.
Then the market drift-off in the last three ‘conflict’ weeks saw the company’s shares fall back to 205p by last Thursday, before closing on Friday night at 213p.
It is almost like the last five months have not happened, pricewise.
Whatever happens after Tuesday’s Q3 results announcement of one thing we can be sure, that is the fact that the group will certainly get a load of press comments, which in turn will help to generate even more investor interest.
These shares are now definitely ready to run back upwards again.
Which makes me very confidently assess the group’s prospects bullishly enough to set a new Target Price of 275p.
(Profile 10.05.23 @ 213.5p set a Target Price of 265p*)
(Asterisk * denotes that Target Price has been achieved since Profile publication)