Aston Martin – Motoring Along
All,
Please find our updated Aston Martin Analysis here.
Aston Martin (AML) has achieved a couple of milestones that addressed our concerns for the company. 1) opting for a technology partnership over the risks and costs of developing a new electric powertrain; 2) the launch and positive reception for the first of six new models. There are still risks for AML around integrating the powertrain and getting all of the new models launched successfully, but this is a good start. We are long both the SUNs and SSNs and expect to be refinanced in a refinancing in late 2024.
Investment Rationale:
In Jun-23, we took a long position for 5% in AML SUNs and SSNs. We invested 3% of NAV in the SUNs at 108 and expect an annual yield of 10% with a refinance in November 2024. The amount of SUNs available was limited, so we also took a 2% of NAV position in the SSNs, which offered around a 9% return.
- We have liked AML before, as we are convinced that the brand name itself is worth more than the debt outstanding, and we are comfortable that AML can remain relevant through the transition to electric.
- Bordering on their call constraints, these bonds did not offer much convexity, but we saw the solid coupon and equity cover as a good place to park cash above inflation for little risk.
- The risk of significant cash outflows on AML developing its electric engine development was a concern for us. We are happy that AML has now opted for bought-in technology.
- AML has launched one of its six new models, and the reception has been positive; the execution risk has lowered but not disappeared.
- Last year’s rights issue leaves AML funded through to becoming free cash flow positive.
Trading Update:
Revenue was above our expectations on better-than-modelled sales in the GT/Sport category. Adjusted EBITDA margins were also up YoY, although, at 13%, there is a long way to go to meet the 2025 target of 25%, let alone the 2027/28 target of 30%. Working capital outflows were £37m vs £99m in Q222. Last year supply chain issues pushed up DBX inventory, making the comp a fairly easy one. AML has placed a lot of faith in H223, targeting Free Cash Flow generation in H2 (excluding the payments to Lucid relating to the electrical power train agreement signed in Q2). AML needs to repeat the successful launch of the DB12 (first deliveries are due in Q3) with five more model launches over the next 18 months; the omens so far are good (with the success of the DBX, DB12 and the Specials all well received).
- Q223 volumes were up vs weak comps. DBX sales last year were hampered by supply chain issues that were absent in 2023. Sales of the GT/Sport segment were down, but this was not unexpected given the new vehicles that are coming (including the DB12 that will start deliveries in Q3.
I look forward to discussing this with you all.
Regards,
Aengus
T: +44 203 744 7055