Aston Martin (AML) nearly doubled its revenues and almost trebled operating profits in its first results as a listed company, as rapacious Chinese demand for the new Vantage model and an improved performance in the Americas drove third-quarter sales growth. Total cars sold soared to 1,776 from 891 units over the comparable period in 2017, so the legendary marque is confident that full-year sales will come in at the top end of expectations at around 6,400 vehicles, while the launch schedule for the new DBX model is also going according to plan.
The headline figures may have been excellent, but the shares clicked into reverse following their release. The markdown is curious given no consensus figures are available and there was limited guidance at the time of admission to trading – and even that was described as "conservative" by broker Jefferies. So, what is worrying investors?
A look under the bonnet reveals hefty debts. Aston Martin’s net debt has increased by 12.5 per cent since the third quarter of 2017 to £523m, although as a proportion of cash profits (Ebitda) it has fallen from a multiple of 2.4 to 2.1. What's more, the bulk of the debt is made up of senior secured notes that mature in April 2022.
However, Philippe Houchois, equity analyst at Jefferies, says Aston Martin’s debt levels are at a higher level than reported, owing to the way it accounts for customer deposits paid in advance of purchases. “Right now, they probably have received £250m of customer deposits,” he said. That estimate is based on around half of trade payables being made up of customer deposits at the time of the IPO. “But that cash has actually been used in the working capital for the business, so we think that £250m should be treated as debt.” Jefferies’ own estimates yield a figure of £750m, or 3.1 times adjusted cash profits," said Mr Houchois.
The debt is an issue, although it would be illuminating to analyse the group's inventory levels ahead of March's Brexit deadline. The good news is that free cash flow is moving in the right direction, with a positive reading of £18.6m, against a £50m outflow in the comparable quarter.
