Why Aston Martin Could Finally Be Shifting Out Of First Gear
The release of full-year results leaves us with a lot of cautious optimism.
A few weeks ago we took a look under the bonnet at two listed European car makers, namely Ferrari and Porsche.
Today we turn to the UK, with the release earlier this week of full-year results for Aston Martin. The stock has been one in the past that we’ve wanted to buy, but have ruled it out on the basis that our heart shouldn’t lead our head.
The stock is down 11% over the past year (even with the spike post results). Over a five year time horizon, it’s down a whopping 98%.
Therefore, to make a compelling case to buy is certainly to go against the long-term trend.
Firstly, let’s run through the results.
Plenty of momentum noted
From the below table, there are immediately some good metrics to note down versus last year.
An increase in wholesale volumes enabled revenue to jump by 18%. This was helped with the launch of the DB12, alongside continued sales of the SUV, the DBX. Interestingly, the brand also saw strong demand for ‘specials’ which it was able to charge a premium for. For example, the Q4 2023 total average selling price (ASP) for specials was £255k, up 20% from Q4 2022 (£213k).
The increase in the gross margin of 39.1% allowed gross profit to jump to £639.2m.
Ultimately, the business did still register a loss before tax, but this was a much slimmer one than the figure from last year.
The main point of concern we would flag is the volatility in free cash flow. The Q4 free cash was a net outflow of £63m (Q4 2022: £37m inflow) impacted by “timing of DB12 and Valour deliveries in December 2023 with related receivables unwinding in January 2024.” These aren’t likely long-term issues for the brand, but given that it’s not flush with cash from retained earnings, it does need to be careful on cash flow management. It doesn’t want to have to rely on higher debt.
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Key factors that could help
Brand recognition via Formula 1
The strong performance of the Aston Martin F1 team last season, powered by Fernando Alonso and Lance Stroll, has been a tailwind for the overall business.
F1 has grown in popularity around the world, with greater exposure to the US as well as attracting a broader audience base thanks to the Drive To Survive series on TV.
Aston has already noted the benefit from this, stating in the last quarterly update that:
“The ongoing Formula 1 season being enjoyed…continues to drive brand visibility and heightened product consideration, with a 7% increase in website traffic versus non-race weekends in 2023 and 13% uplift in configurator traffic. Market research indicates that 60% of luxury car buyers strongly agree they are more likely to buy an Aston Martin because of its association with F1.”
Let’s not forget the use of Aston’s DBX as the safety car during races, and the subtle marketing references that go along with it.
Of course, one good season doesn’t make a world champion, but if Aston can build on last season, even scoring a victory, then the elevated brand image could certainly boost revenues.
Restructuring the debt pile
Net debt grew by 6% year-on-year, with the year-end cash position at £392m, lower than the £583m reported in 2022.