Yes, Brexit’s a threat – but Aston Martin’s last quarterly earnings weren’t bad
If you were trying to work out how well Aston Martin’s business is performing solely from looking at its share price, you would almost certainly get it wrong. The reason for that is that recent movements don’t seem to have that much to do with the company’s recent earnings report, and are being driven, instead, by investor sentiment over two things: first, worries that the company’s shares were overpriced at its recent IPO, and second, that Brexit poses an existential threat to its business.
Aston Martin’s share price took a dive recently, as investors aired their concern over the stock
Source: Yahoo Finance
Before we get to earnings, lets deal with those two concerns. First, as to the company’s share price. Aston Martin is an iconic brand perhaps best-known in popular culture for being the car choice of stylish super-spy James Bond. There’s a good argument that it should be valued as a luxury company, not a car manufacturer. If that’s true, then Aston Martin’s valuation looks pretty great: it’s trading at a discount to its closest peer, Ferrari, despite having a superior earnings growth profile.
The Brexit worries are harder to dispel, simply because no one seems to know what Brexit will actually entail (this uncertainty less-than a month away from the scheduled leave date is undoubtedly the cause of the panic). All we can say to that is that Aston Martin’s clientele should prove to be economically robust enough (read: rich) that their purchasing power holds up in the worst-case scenario. And, although the company’s CEO, Andy Palmer, has spoken to the threat posed by Brexit, he’s also been explicit that the company has plans in place for a “no-deal” exit from the EU.
Now, on to the earnings. So how well did Aston Martin do? Year on year, the company saw sales soar by 26%. Driven by new models and massive growth in America (+38%) and China (+31%), there is no reason to think a slow-down is on the cards. But, while revenue hit analysts’ estimates, profit fell slightly short. Adjusted earnings for the quarter came in at £87 million, rather than the £90 million the Street was hoping for. That, and a guidance on sales volume that Goldman Sachs described as “underwhelming” served to stoke the fears described above and send the share price down.
Palmer said: “2018 was an outstanding year for Aston Martin Lagonda, delivering strong growth, with improving revenues, unit sales, and adjusted profits. As the UK’s only listed luxury automotive group, we have demonstrated our legitimacy in the global luxury market. Our well-defined expansion plans, that combine outstanding high-performance cars with iconic brand status, are on track as we manage through the uncertainties and disruption impacting the wider auto industry,” adding that 2019 will be “another year of growth.”
Dominion holds Aston Martin Lagonda in its Global Trends Luxury Fund.
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