CORRECTION: An earlier version of this article incorrectly stated that revenue increased 88% from the same quarter last year
The last time I wrote about Aston Martin Lagonda (LSE:AML) was back in March. I was discussing the fall of almost 10% seen that month in the Aston Martin share price. That compounded the slump that has seen shares drop almost 90% over the past two years. This week we got the results for the first quarter of 2021. This was definitely a step in the right direction, but I’m still very uncertain about investing my hard-earned money in the stock.
News from the trading update
The trading update released yesterday noted that Q1 performance was “in line with expectations”. Revenue came in at £224.4m, up 153% from the same quarter last year. The loss before tax also shrank considerably to £42.2m versus the loss of over £110m in Q1 2020.
Wholesale growth jumped due to higher demand, in particular thanks to SUVs. The DBX model represented 55% of car units, and it looks like it could be a desirable car for affluent consumers into the future. Other special-edition vehicles such as the Vantage F1 and the Valkyrie are due out soon.
The other good news I noted was the move back to a positive net cash flow. This time last year it was negative to the tune of £92.5m, but is now back to a positive figure of £24.2m. This highlights to me that Aston Martin is managing its finances better and has less short-term stress on the books.
The Aston Martin share price rose modestly after the announcement, up 1%. However, over the course of the week, the shares are still slightly down.
My outlook for the share price
Even with the above positive points, I’m struggling to want to buy the shares. The improvements in results are good, but at an absolute level, they’re still not great.
For example, take debt levels. Net debt has shrunk, largely due to higher cash levels. Yet it’s still at a very high level of £722.9m. This dwarfs the quarterly revenue figure. The debt taken on over the past couple of years was always going to be a long-term problem. I understand why it was needed, but just because it has started to fall doesn’t mean the company is out of the woods yet.
Another concern I have is around the bottom line. Investors can focus on revenue growth and exciting models being released, but the business is still loss-making. I mentioned above how the loss before tax shrank versus last year, but it’s still losing circa £40m on revenue of £225m. This is a large mismatch and something that I think shows that the Aston Martin share price isn’t ready for a prolonged rally.
I could be wrong, and the quarterly results could snowball into a better H1 performance. But the lack of a move higher this week in the share price tends to make me think that investors agree with my thoughts at the moment.
