Aston Martin – Motoring on – Positioning
All,
Please find our unchanged analysis here.
Aston Martin (AML) will refinance in Q4 2024 and pricing reflects call levels. We have decided to exit our position to allocate capital elsewhere after a Q423 that exceeded our expectations. The new Vantage model has received positive reviews and after the successful launch of the DB12, the level of execution risk has been lowered. We expect Geely to eventually take control of AML, but Lawrence Stroll’s consortium will want to extract a good price.
Investment Considerations.
- In June last year we took a long position for 3% of NAV in the SUNs at 108 and a 2% NAV position in the SSNs at 102. We will exit at 108.00 and 101 respectively. Our return on the SUNs is around 9% and 6% on the SSNs.
- Bordering on their call constraints, these bonds do not offer much convexity, but this was a low-risk position with a solid coupon and equity cover and a good place to park cash above inflation.
23Q4 Trading Update.
- Despite a strong 2022 comp, AML beat our Q4 expectations for Revenue and Adjusted EBITDA. The weaker-than-expected operational cash flow resulted from a working capital outflow of £86m driven by delivery delays in the DB12 models, which were resolved in January. The successful launch of the Vantage has reduced new model risk. Whilst AML will consume cash in 2024, it expects to be sustainably free cash flow positive from H2.
-There were delivery issues with the DB12 in the final quarter that crimped cash flow. On the call, management confirmed that the software issue in the display (HMI) was resolved and the working capital position reversed in January.
- Management is insistent that the initial production issues for the DB12 have been resolved and will not reoccur.
-2024 Guidance is for deliveries to grow in the high single digits. This is credible, given the launch of two new cars in the year. Gross margins of around 40% are expected with more customisation leading to higher prices and profitability. The medium-term EBITDA margin target of 25% is getting closer with a low 20s% expected in 2024. AML expects to turn free cash flow positive in H2 which is ahead of our previous modelling
As always, if any client wishes to discuss the name, I am happy to hear from you.
Regards Aengus
Aengus
T: +44 203 744 7055