Aston Martin aims to lift deliveries and improve profitability in 2023

Key takeaways

• Aston Martin shares are on the rise after revealing profitability will improve significantly in 2023
• Goal to deliver 7,000 cars in 2023 fell short of market expectations
• But higher prices and improved scale are driving up margins, allowing it to improve profitability with lower volumes
• Capital expenditure will peak this year, but Aston Martin aims to start generating cash in the second half of 2023

Aston Martin aims for 7,000 deliveries in 2023

The luxury carmaker delivered 6,412 cars in 2022, which was up just 4% from the year before as it was forced to grapple with numerous headwinds that were largely out of its control from component shortages and supply chain disruption.

With conditions improving, Aston Martin is aiming to increase that to 7,000 in 2023. That was just short of the 7,350 forecast by analysts, but it does put the company on course to deliver a fourth consecutive year of growth and for deliveries to hit their highest level since Aston Martin went public.

 (Source: Company reports)

Aston Martin eyes improved profitability

Investors should not be too concerned that its delivery target for 2023 was short of estimates after Aston Martin said it can hit its profitability targets with significantly fewer volumes than previously thought.

Higher prices are a big factor. Its core average selling price rose to £177,000 in 2022 from £150,000 in 2021. The overall average selling price hit new record levels of £201,000. Aston Martin has rebalanced supply levels in recent years, which has helped lift prices, and the introduction of the higher-priced Valkyrie has also helped.

(Source: Bloomberg)

‘2022 marked the start of a thrilling new product line-up, starting with the critically acclaimed DBX707 - the most powerful luxury SUV in the world - combining ultra-luxury with high performance and, crucially, with increased profitability. The DBX707 was followed by V12 Vantage, the ultra-luxury DBR22 and, in early January of this year, the DBS 770 Ultimate - all fully sold out,’ said executive chairman Lawrence Stroll.

Higher prices twinned with improved volumes should significantly improve its adjusted Ebitda margin to 20% in 2023 from just 13.8% in 2022. The improved outlook for profitability is a big deal considering Aston Martin has disappointed shareholders with numerous profit warnings since it went public back in 2018.

Aston Martin reiterates financial targets

Aston Martin reiterated its plan to deliver £2 billion in annual revenue and £500 million of adjusted Ebitda by 2024/2025. That needs to improve from what was delivered in 2022, when revenue rose 26% to £1.38 billion and adjusted Ebitda improved 38% to £190.2 million.

It originally said it would need to deliver 10,000 cars to achieve that goal, but now believes it can hit these targets with ‘significantly lower volumes’.

That means production could increase at a slower pace than anticipated over the coming years, but it does mean that the financial rewards from hitting that 10,000 target are now much greater than previously thought.

2023 will be a key bridging year to 2024, when scrutiny over these financial goals will increase. Aston Martin has also said that capital expenditure will peak in 2023 as it introduces a number of new models and specials, but said it is hoping to become cashflow positive from the second half and beyond.

The path to becoming cashflow generative will also be welcomed. The company raised over £650 million in equity last year to shore-up the balance sheet but some analysts were worried that another capital raise was on the way. Aston Martin burnt through £299 million in 2022 and ended the year with £583 million in cash, and is now racing to generate cash before that existing pile runs out.

‘As I have said before, I knew it would take multiple years to build Aston Martin into the world's most desirable ultra-luxury British performance brand. With the heavy lifting behind us, we are now poised to see the results of this transformation, starting in 2023.  In addition to celebrating our 110th anniversary and our exciting line up of Specials, it will also see the start of our next generation of front-engine sports cars which will truly reposition Aston Martin for the future,’ said Stroll.

Where next for the Aston Martin share price?

The Aston Martin share price is up over 6% this morning and trading at its highest level in over seven months, building on the uptrend that can be traced back last October when it hit all-time lows.

The stock is now up over 16% since we saw that golden cross emerge earlier this month, when the 50-day moving average crossed back above the 200-day moving average. The next upside target for the stock is 227p, marking the lows we saw last May as well as the highs we saw in July. From here, a larger move toward 277p.

However, there are reasons to doubt the rally can keep up the momentum. Today’s jump has pushed the RSI deep into overbought territory and the 11 brokers that cover Aston Martin think the rally this year has been overdone considering they have an average target price of 157p, implying the company is overvalued by some 26%. We may see this rise in the wake of the update and it is worth noting that the target price sat as high as 212p at the start of 2023.

The uptrend has been strong and should provide some support if the stock comes under renewed pressure, with the 50-day moving average running parallel to the trendline and ready to offer support if necessary.

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