Aston Martin (LSE:AML) shares were up 10% in early morning trading, putting it among the best-performing UK stocks on Wednesday, 24 July.
So why’s the stock doing so well? Well, the company’s results — released on 24 July — for the first half of the year were much better than expected.
And these results should put the company in a strong position as it transitions toward its improved line up of vehicles.
Let’s take a closer look.
Racing ahead
Aston Martin’s Q1 results gave us little to be optimistic about, with the exception of the promise that things would get better later in the year. In fact, the company suggested things wouldn’t improve much until the second half of the year.
As such, the results for the second quarter and the first half of the year were surprisingly strong.
For the first six months, the company reported a gross profit of £232.9m. That’s down just 1% over 12 months and was realised despite delivering 32% fewer vehicles.
Revenue fell 11% to £603m, but the higher gross margin seemingly pulled the company in the right direction. In the second quarter, Aston’s gross margin reached an enviable 39.7%. It’s not there yet, but it’s getting closer to Ferrari.
Of course, some of the results were concerning, albeit better than expected. Pre-tax losses at the firm widened by more than 50% to £217m, and net debt now stands at an eye-watering £1.19bn.
What’s happened to the turnaround?
CEO Lawrence Stroll promised to turn Aston Martin around. Under his leadership/ownership, the company’s achieved some impressive feats from a product perspective, notably with the launch of the DBX SUV.
However, from a financial perspective, things still aren’t great. The original strategic objective was to increase deliveries to 10,000 cars a year by 2024/2025, and achieve £2bn in revenue and £500m in EBITDA. However, 10,000 deliveries was subsequently reduced to 8,000 as margin projections improved.
For context, Aston delivered just 1,998 vehicles in the first half of 2024 — down from 2,954 in H1 of 2023 — with revenue of £603m and £62.2m of adjusted EBITDA.
This data suggests Aston isn’t that close to hitting the target. However, Stroll’s company’s going through a “core portfolio transition” with two new models already launched this year and two more to come.
The company said that wholesale volumes would be heavily weighted to the second half of the year. In turn, this would deliver significant H2 growth in gross profit and EBITDA, Aston Martin said.
The bottom line
I own Aston Martin shares, but I already hold enough of this volatile stock for my liking. I’m optimistic that the strength of the brand will carry the company forward and, one day, it’ll trade with strong multiples.
However, I accept that the debt burden and the cost of electrification are deeply concerning. It’s not a given that Aston Martin will survive. I don’t think it will go out of business, but it’s a possibility every investor should bear in mind.
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James Fox has positions in Aston Martin. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
