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5:01 AM 27th February 2021
business

Market Analysis: Aston Martin Lagonda & IAG

 

Harry Barnick, Senior Analyst at Third Bridge comments on Aston Martin Lagonda's results:

"The FY20 results today showed a -42% decline in wholesales and -32% in retails for Aston Martin, a reflection of the action the company has taken to reduce dealer stock.

Increasing the number of SUV sales is mission critical to the turnaround of the brand. Q3 was uninspiring with less than 400 units, Q4 volumes shot up to 1,171 units, which will bring comfort to investors. Aston Martin now has to sustain this quarterly figure through 2021 if it is to avoid falling behind by its competitors.

The increase in DBX sales could be due to the recent price adjustment. We know Aston Martin has already been forced to reduce the DBX price point and our experts are concerned that management is underplaying why. It may well be that Aston Martin's order book was thin at launch.

Aston Martin will soon need to become more aggressive with its model refresh strategy. Ferrari is best-in-class here, refreshing its models every 2-3 years. The DB11 is already three years old with a refresh requiring material investment. The problem is cash as a model refresh can cost up to GBP100M, according to Third Bridge experts.

Aston Martin's huge debt pile limits its ability to invest in refreshes and new models, which consequently limits its competitiveness and further constrains cash. It's a bit of a Catch 22: Aston Martin will struggle to reach its punchy 2024/2025 targets without significant investment but can't invest what is required as it doesn't have the cash.

Aston Martin's partnership with Mercedes is a vital opportunity to grow its electric vehicle capabilities with limited investment. The rumour mill is already in overdrive with speculation that this could lead to an outright acquisition of AML.

Jack Winchester, Analyst at Third Bridge comments on IAG:

“These results from IAG really do bring out just how painful the last year has been for the airline industry. While they cut capacity by two thirds through the year, it was still not possible to fill planes profitably and the company posted an operating loss of 7.4bn EUR for 2020.

“Cash burn for the airline group was a whopping 4.1bnEUR, amounting to almost 80 million Euros a week.

“Investors have been willing to plug IAG’s finances on the assumption of an eventual recovery, but when the dust settles we are likely to see that low cost carriers like Ryanair and Wizz Air have come out of 2020 in far better shape.

“Although travel agents have seen a spike in bookings, since Boris Johnson’s recent roadmap was announced, a question mark still hangs over when it will be practical for British nationals to take foreign holidays again. This is holding back a dam of pent up demand, and IAG will be desperate to see that unleashed.

“While the UK’s infection rates are falling and vaccination rates are climbing, things aren’t yet moving as quickly in Europe, and this is vital to the health of IAG. Legacy carriers will also be keen to see business travel return but this doesn’t look likely until at least a few years, according to our experts.”