It has been a simply horrendous few years for Aston Martin (LSE: AML) shareholders. The luxury carmaker’s shares have plummeted 94% in the past five years. But they are up around 4% in early trading today (29 April) as the market digests the latest set of numbers from the firm.
Could this potentially mark the start of a turnaround in the beleaguered company’s fortunes?
Some signs of progress
Let’s start with the positives in the latest quarterly statement.
Aston Martin maintained its full-year outlook “whilst remaining mindful of the broader macroeconomic and geopolitical backdrop”.
That might not sound very positive, but given the company’s history of disappointing shareholders and the current global economic uncertainty, I do see it as positive. That said, the caveat gives the company wiggle room should business go downhill later in the year.
Another piece of good news was that what the company calls its core retail volumes in the quarter were significantly ahead of wholesale volumes.
Reducing the amount of capital tied up in cars sitting in dealerships can help the company’s financial breathing space, which is especially welcome given its £1.5bn net debt.
Gross profit margins were also well ahead of the same quarter last year, at 34.7% this time round, compared to 27.9% back then.
This was partly due to ramping up deliveries of the Valhalla supercar. With more Valhalla sales anticipated, the mix of products sold could bode well for the company’s profitability.
A long road ahead
Still, profit remains elusive. The operating loss was reduced considerably, but still registered as a loss not a profit.
I see making money at the operating level as a crucial first step to fixing Aston Martin’s financial health, as the company has a lot of non-operating costs on top of that. The latest quarter demonstrates that. The operating loss was £8.9m, but the company’s loss before tax was far greater, at £65.5m.
But again, that is better than the same number in the prior year’s quarter, it is still substantial.
Servicing the company’s debt – much of it at high interest rates – is expensive. It net interest costs of £150m this year.
Meanwhile, that macroeconomic and geopolitical backdrop is a significant ongoing risk for the firm. It could hurt demand, add costs such as tariffs or lead to delays in the company’s supply chain. None of those would be good for profits.
I have no desire to invest right now
With its strong brand, well-heeled customer base and proven technical prowess, the business has a lot of strengths as a business.
But it has been consistently unable to turn them into profits at the operating level. Even if it can do that at some point, managing its non-operating costs remains a substantial challenge.
The company has repeatedly tried to improve its balance sheet by issuing new shares, diluting existing shareholders. That remains a risk.
The risks overall are far too great for me. If Aston Martin can keep improving its financial performance and not disappoint the City yet again, its share price could potentially move up strongly from here.
For now, though, with it still not having proved it can be consistently profitable, I have no plans to invest.
