Aston Martin's recovery chugs along

Things are moving in the right direction for Aston Martin Lagonda (AML), but at a pace that is slower than its products are known for.

The maker of high-performance sports cars cut its adjusted operating loss by two thirds to £74.3mn in 2021 on the back of higher sales as it increased wholesale vehicle deliveries by 82 per cent to 6,178.

Yet the fact that it continued to lose money meant its already large debt pile increased and it continues to bleed cash. 

Although it generated £179mn of cash from operations – compared to a prior-year outflow of £199mn – investments of £185mn in its DBX and Valkyrie models and a 46 per cent increase in interest payments to £117mn meant it suffered a cash outflow of £123mn.

AML is paying 10.5 per cent interest on $1.18bn (£868mn) of loan notes due in 2025 and 15 per cent on $335mn of notes due in 2026. Net debt rose by £165mn to £892mn at year end, or 6.5-times adjusted earnings.

The company expects an 8 per cent increase in volumes this year as it delivers more of its new Valkyrie ‘hypercar’ models, a new DBX707 sports utility vehicle and a V12 Vantage. It also forecasts its adjusted cash profit figure of £138mn for last year will grow by 50 per cent.

The company has mapped out a path to profitability, with a target of producing 10,000 vehicles, generating £2bn of revenue and £500mn of cash profit by 2024-25. The challenge is in making sure it doesn’t run out of road before it gets there.

Past equity issues and share price declines since AML's 2019 IPO have meant the annualised total return to shareholders has been a negative 82.4 per cent, according to FactSet data. Even after raising money, AML’s market cap has sunk from £4.33bn at the time of the float to £1.22bn currently.

Broker Panmure Gordon said it is discontinuing coverage of AML because it doesn’t see an investment case for the company’s shares until its balance sheet strengthens. This is hard to argue with.

The company needs to show meaningful progress in cutting debt to stand a chance of refinancing and lowering its interest burden. Otherwise, it may need to return to shareholders to tap them for more cash. Sell.

Last IC View: Sell, 1,461p, 7 Jan 2022