Shares in luxury car firm Aston Martin Lagonda (LSE: AML) were up 8% this morning following the release of results covering the first half of 2020.
Does this mark the beginning of a more sustained recovery in the share price? I think it unlikely.
Aston Martin’s “challenging six months”
With the coronavirus battering the vast majority of businesses over the last few months, it’s to be expected that today’s numbers weren’t exactly impressive.
Total retails sales tumbled 41% to 1,770 cars in the six months to the end of June as dealers were forced to shut up shop.
As a sign of just how bad things are, the company sold just one car from its special range over the first half of 2020. Contrast this with the 36 vehicles sold over the half-year to June 2019.
The fact that retail sales were ahead of wholesales, however, did mean that the company made “significant progress” on its goal of reducing dealer inventory and rebalancing supply to demand.
All told, revenue fell 64% to £146m over what new Executive Chair Lawrence Stroll reflected had been “a very intense and challenging six months“. Aston Martin also posted a pre-tax loss of £227.4m. This is up significantly on the £80m loss reported over the same period last year.
So, why are the shares doing so well today? The only reason I can find is that retail sales in China were up 11% year-on-year in June. Dealerships in China reopened last month. When your share price has already been pummelled, even the merest chink of light is sufficient to generate interest.
Personally, I’m still to be convinced that the company is investable.
For one, Aston Martin still carries a lot of debt despite attempting to make cost savings where it can. At the end of June, this stood at £751m. Although lower than it once was, this is still roughly 75% of the company’s entire value. That’s hardly a position of strength.
I’m also somewhat sceptical that the new Aston Martin F1 team will benefit the company as much as management think it will. Sure – motor racing fans will fuss over the cars but is this “significant global marketing platform” even necessary? The brand and quality of the vehicles were never in doubt. It’s the business that’s always been the problem.
Being so dependent on its new DBX model proving popular is also something to be wary of. It might be a wonderful bit of machinery but that won’t necessarily translate to great sales at a time when the global economy is in such a mess.
Bumpy road ahead
Looking ahead, the company said that the uncertainty over the coronavirus means trading “remains challenging in many markets“. Having new and highly experienced CEO Tobias Moers in charge from the beginning of August may reassure those already invested but I can’t see this situation changing anytime soon.
Indeed, should the threat of a second coronavirus wave become a reality, the share price could crash even further. To recap, anyone who invested in the firm back in October 2018 would already be sitting on a loss of around 90%!
All told, I suspect Aston Martin may remain the plaything of traders for some time to come.
For anyone wanting a more comfortable ride, I think there are far better options out there.