Last week, Aston Martin Lagonda (LSE:AML) released results for the first half of the year. Although there were some positives, the large loss is something that many investors picked up on. With Aston Martin shares now down 76% over the past year, is this a car stock I should stay away from, or an undervalued gem?
Breaking down the results
Revenue for H1 actually increased 9% year-on-year. This is encouraging, and shows that demand for the luxury cars is high even in the current economic environment. GT and sports car models are now sold out into 2023, with orders for the SUV (the DBX) up 40% versus the same period last year.
This helped to push adjusted EBITDA up 20% year-on-year. Another point I noted that helped this was the higher average selling price. In H1 2021, the average price was £150k, a year later it’s now £164k. If you can sell similar cars for a higher price, this will naturally help to lift profiability.
However, the big news out from the report was a loss before tax of £285.4m. This was up significantly from the loss of £90.7m in H1 2021. A chunk of this loss was due to a foreign exchange (FX) revaluation, as well as an increase in depreciation and amortisation. Unfortunately, the profit/loss before tax is often the most scrutinised figure, which will leave investors very underwhelmed.
Surprisingly optimistic going into H2
The half-year report commentary was very upbeat though, which is one reason why I think the Aston Martin share price didn’t fall when the results were released.
In terms of the outlook, management is optimistic about the business going forward. Its financial guidance has been reaffirmed for the full-year. Given that the FX revaluation and the depreciation hits are more accounting moves than actual cash impacts, the fundamentals of the business do seem to be improving.
New models, such as the V12 Vantage, have already sold out ahead of release. I don’t think this will change any time soon, even with the higher list prices. Despite the history of poor financial planning, Aston Martin does carry with it the intangible asset of a strong brand reputation.
I’m still concerned about Aston Martin shares
Even with the above positivity, I don’t have a great feeling about investing now. Demand for luxury cars has held up so far, but I think the cost of living crisis could cause demand to fall as even the affluent become more conservative about spending.
Further, I think the business really has to be careful about managing finances. Net debt stands at a chunky £1,266m, with a cash balance of just £156m. Add into the mix operational delays, and much needed revenue could be tied up in unfinished cars for longer than desired.
I don’t have a great gut feeling about investing now, as problems keep seeming to appear with each new report. On that basis, I’m going to look for better opportunities elsewhere.
