Aston Martin shares: what to expect from half-year results
Aston Martin has warned its second quarter results will be ‘very painful’, but investors hope it can start to deliver its turnaround plan as it enters the second half.
When will Aston Martin release its H1 results?
Aston Martin is due to release first-half (H1) results at 7 AM BST on Wednesday 29 July. The results will cover the three months and six months to the end of June, 2020.
Aston Martin H1 earnings: what does the City expect?
Aston Martin is under new management after being rescued by Canadian Formula One (F1) billionaire Lawrence Stroll. The board has been overhauled, bringing in the likes of Kenneth Gregor from Jaguar Land Rover as chief financial officer (CFO) and, from 1 August, Tobias Moers will take up his post as chief executive after leaving his role as boss of the AMG performance arm of Mercedes-Benz.
The new team comes with a new strategy aimed at resetting the business and returning Aston Martin to glory, but nobody is expecting a quick fix and there is a lot of work to do. Much of its hopes have been pinned on its first ever sport utility vehicle (SUV), the DBX, which it hopes will widen the company’s appeal, particularly in fast growing areas like China, and revive the unimpressive sales Aston Martin has achieved of late.
You can read more about the changes that have happened at Aston Martin this year in IG’s in-depth article.
The carmaker has already warned that the second quarter (Q2) will be ‘very painful’ as the brunt of the impact from the coronavirus – which shut down dealerships and halted production – will be felt. That suggests even more pain for investors following a poor set of Q1 results that showed wholesale volumes plunge by 45% and a 60% drop in revenue as oversupply means it had to cut prices.
That pushed it to an adjusted loss on earnings before interest, tax, depreciation and amortisation (EBITDA) of £48.9 million from a £28.3 million profit the year before, while its adjusted operating loss swelled from just £2.2 million to £75.8 million.
Investors won’t be expecting much from the results themselves, but they will want to see signs that Aston Martin is in a position to stage a strong recovery as dealerships reopen and it begins delivering its first DBXs.
The other major concern will be Aston Martin’s financial strength. The company has raised nearly £700 million in equity alone since the start of 2020 and it has been forced to utilise debt, including government packages and the furlough scheme, to keep the company going.
It has cut hundreds of jobs and lowered costs but there are still concerns that debt remains too high, mainly because its poor financial performance has compounded the effect on leverage. A turnaround is not cheap but comes at a time when its performance is lacklustre, and the economy isn’t faring well thanks to the coronavirus.
Aston Martin H1 earnings consensus
|H1 2020 Consensus|
|Net revenue||£125 million|
|Adjusted Ebitda||(£107 million)|
|Adjusted Ebit||(£171 million)|
Source: Aston Martin
What to watch out for in Aston Martin’s H1 results
A company-compiled consensus suggests Aston Martin will post dire results for Q2, which is expected to drag down results for H1. Below are some of the key things to watch out for.
Supply and demand
One of the reasons Aston Martin is in trouble is because there is an oversupply of its cars in third-party dealerships and they are not shifting as anticipated. This is forcing the carmaker to gradually reduce its dealer stock and, in the five months to the end of May, it took 617 units out of showrooms, which compares to just 190 removals in the whole of 2019.
This is the reason why wholesale units are expected to experience such a severe fall in the first half, with the consensus forecasting just 844 units compared to over 2,400 the year before. Still, that suggests the pace has slowed in Q2 considering it removed 578 wholesale units in Q1.
As for demand, there is hopes that things will have started to improve now that over 90% of its dealership partners have reopened since being closed by lockdown measures, including those in China, although it is expected to be a slow recovery.
To shift the stock, Aston Martin has had to cut prices and provide favourable financing terms to get customers to buy them. The average selling price in Q1 was just £98,000 – a third less than the £149,000 posted a year earlier. If Aston Martin can deliver a higher asking price in Q2 then this would suggest its reduction in stock is starting to work. Revenue in H1 is expected to be £125 million, down from £407.1 million the year before.
The DBX will be the key focus in the results. The success of the company’s first ever SUV is crucial if Aston Martin hopes to stage a recovery in H2 2020 and deliver its longer-term goals. Although the coronavirus has impacted operations, the St Athan manufacturing plant in Wales has already reopened and ‘full production’ of the DBX was already in full swing in June.
Having learnt from its oversupply issue, Aston Martin is only making DBX’s to order, and it already has a large enough backlog to keep it busy into 2021. Plus, most of the orders are directly from customers rather than through dealerships.
Therefore, the challenge is meeting demand rather than drumming it up. Investors will want to see the order book continuing to grow but will be more concerned about how quickly it can build them and ship them out to customers over the short term. This, after all, is what is supposed to drive cashflow and the overall turnaround of the business. A successful launch is the ‘most pressing objective’ in 2020, and the first deliveries of the DBX are expected in July.
Aston Martin has raised significant sums from investors this year. Stroll and a consortium investors ploughed £171 million into the business earlier this year and that was followed by a rights issue that saw a further £365 million raised from existing investors. It then secured another £152 million in a placing in June.
It said it had cash of £244 million and net debt of £833 million at the end of May, before it raised the most recent £152 million and accessed $68 million of pricey debt with a coupon of 12%. It has also since secured loans under the government support scheme and new trade financing packages.
Even after that, Aston Martin warned it is still looking to raise more cash, partly because rising debt coupled with a poor performance is not good for leverage, which is still at unsustainable levels. ‘As disclosed in May, the company continues review of all future funding and refinancing options to increase liquidity, particularly in light of the ongoing uncertainty presented by Covid-19,’ it said on 26 June.
Debt is already too high, so the fear is that Aston Martin will have to ask investors for more cash in the future, and the significant dilution that would bring. That fear is justified, and one that has helped drive Aston Martin shares lower.
The carmaker had just 304 million shares in issue at the end of March and today that stands at over 1.8 billion. If Aston Martin does need more funding in the near future, then the new CFO may find the company has already exhausted many of his options.
How to trade Aston Martin’s H1 results
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Aston Martin shares: broker recommendations
Aston Martin shares listed at £18 per share in October 2018 but they trade at just a fraction of that today. Shares hit an all-time low on 15 May of just 33.46p and although they have recovered some of that value since then they still trade well below previous levels.
Aston Martin’s turnaround plan offers hope for the future but the huge task at hand does not come without its risks. This, coupled with the severe destruction in value over recent months, has left brokers cautious over Aston Martin shares and none of them believe the carmaker is undervalued at present. Six brokers have Hold ratings, five have Sell and one thinks the stock is a Strong Sell. Still, the average target price of 55.32 pence suggests there is some upside potential from its current share price.
|Aston Martin Shares||No of Brokers|
|Average Target Price||55.32p|
|Potential upside (vs 27/07/2020)||16%|
Aston Martin share price: technical analysis
Aston Martin’s shares may have slowed their decline, but there is little sign of any near-term revival. The bounce from the May lows ran out of steam around 90p, creating a lower high, and while we did see a rebound in the middle of July, this too has come to nothing, dropping back below the 50-day simple moving average (SMA) at 56p and heading back to the support zone around 45p.
Further declines bring 34p and 27p into view. Meanwhile, a more bullish view requires a break of trendline resistance from that June peak, which would suggest a rally above 60p that would clear the trendline and move above the lower high from earlier in July.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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