Interactive Investor

Better news from Aston Martin after DBX success

Aston shares have doubled in the past year, but it’s being outshone by an old-school engineer today.

6th May 2021 13:19

Graeme Evans from interactive investor

Aston shares have doubled in the past year, but it’s being outshone by an old-school engineer today.

Aston Martin Lagonda (LSE:AML) showed more signs of promise today, although in the race of the FTSE 250 index the F1 newcomer was no match for one of the London market's old hands.

Shares in Morgan Advanced Materials (LSE:MGAM), which first joined the London Stock Exchange in 1946 when it was known as The Morgan Crucible Company, raced ahead 10% to stand at their highest level since September 2018, buoyed by a better-than-expected trading update.

The 165-year-old business, whose thermal products and carbon and technical ceramics divisions serve a wide range of industries, now expects to see constant currency sales growth in the range of 5% and 8% for improved profitability over the year as a whole.

The update prompted Investec Securities analyst Scott Cagehin to raise his 2021 profit forecast by 10% and by 4% for the following year. His target price is now 400p, compared with 332.5p seen following today's update.

Cagehin said: “The investment case of a consistently improving business model, with its progress and potential not reflected in valuation remains. We believe that Morgan's upgrade cycle begins here and its abnormally low valuation levels are increasingly hard to ignore.”

The shares are on a multiple of 10.5 times 2022 forecast earnings — a significant peer group discount — alongside a dividend yield of 3.8%. Among other brokers, Jefferies had a target of 375p prior to today.

The signs of improved trading conditions also boosted shares of Vesuvius, the molten metal engineer that approached Morgan about a possible takeover back in 2014. Its shares were second on the FTSE 250 risers board after lifting 5% or 28p to 578p.

What's driving Aston Martin's turnaround?

Aston Martin rose 20p to 1,920.5p as the recovery under the leadership of F1 motor racing financier Lawrence Stroll continued with first quarter revenues more than double the previous year at £224.4 million.

The pre-tax loss narrowed to £42.2 million, while net debt fell to £723 million on the back of positive cash flow of £24 million compared with forecasts for cash burn of £30 million.

Chief executive Tobias Moers said dealer inventories of GT and Sport models had been returned to optimum levels earlier than planned, supporting stronger pricing dynamics. The average selling price was £151,000 in the period.

Moers has also been encouraged by growth in orders, including for the recently launched DBX utility vehicle after it accounted for more than half of wholesale business at 746 vehicles.

The former Daimler (XETRA:DAI) director has been in charge since August after Stroll took over as executive chairman a year ago as part of a consortium's £688 million cash injection. Stroll's medium-term aim by 2024-25 is for annual revenues of £2 billion and adjusted earnings of £500 million, based on vehicle sales to dealers of 10,000. 

Stroll has already been successful in returning the marque to the pinnacle of world motorsport for the first time in more than 60 years, after the Aston Martin Cognizant team took its place on the starting grid at the Bahrain Grand Prix at the end of March.

He said: “My co-investors and I are very confident in the future success and potential for Aston Martin as we transform the company to be one of the greatest luxury car brands in the world.”

Having endured a tough start to life since the joining the stock market in 2018, Aston Martin is increasingly winning support on the back of its Project Horizon transformation plan.

Citi's Angus Tweedie is among the most optimistic with a price target of 2,800p. He said: “These are strong results and, while this should have been expected by the market, we believe this should support shares as the management turnaround plan continues to gather traction.”

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