Aston Martin Lagonda Global Holdings PLC (LON: AML)
 

Aston Martin Lagonda Global Holdings PLC (AML) is a Warwick, United Kingdom-headquartered prominent luxury brand which is focused on the engineering, manufacturing, and design of luxury sports cars. The group has a long tradition of extraordinary design, manufacturing and engineering of luxury sedans and sports cars, and is only independent luxury car group in the world with more than 100 years of design and automotive excellence across two brands. The company is manufacturing and exporting cars in 53 countries around the world.

Trading Update: (9M to September 30, 2019)

Source: Co. Filings

On a YTD basis, the group's revenue slumped by 7% to £657.2m against £707.3m reported a year-ago period, driven by a 3% slump in the total wholesale volumes. However, in the third quarter of FY19, revenue plunged by 11% to £250.1m against £282.4m reported in the same period of the corresponding financial year, as wholesale volume tanked by 16% to 1,497 against 1,776 reported a year-over period.

9M Adjusted EBITDA declined by 57% to £69.7m against £160.3m recorded in the corresponding previous year, comprising a one-time £19m provision in the H1FY19 for a doubtful debt on account to the sale of legacy Intellectual Property, lower Average Selling Price (ASP), planned costs of expansion, and fewer Specials.

However, adjusted EBITDA during the Q3FY19 stood at £47.7m against £54.4m reported in the comparable previous financial year, benefitted from the positive impact of Specials.

On a 9M basis, the group reported an operating loss of £27.2m against a profit of £89.7m it recorded during 9MFY18 and in the third quarter of FY19, operating profit slumped by 58% to £10.5m, respectively.

Stock Performance
 
Daily Price Chart (as on December 06, 2019), before the market close. (Source: Thomson Reuters).

Shares of AML plummeted approximately 56% on a YoY basis and around 52% on a YTD basis. However, it recorded a strong trend reversal in the past one-month as prices soared by 42% in just one month and were up by around 4% in the past five trading session.

At the time of writing (at 11:58 AM GMT, before the market close), shares of AML traded 30.6 points or 5.24% higher at GBX 626.8. In a year-over period, its shares have registered a 52w high of GBX 1,374.40 and a 52w low of GBX 371.10, respectively.

In the year-over period, its shares traded 121 times higher and 130 times lower against the respective previous closing, which shows Ups underperformed Downs in the last one year. However, in a month-over period, the stock ended 14 times higher and 8 times lower and Up/Down ratio stood at 14/8 or 1.7.

Conclusion
Recently the group unveiled its long-awaited DBX sport utility car as it is aiming to attract more female buyers and put to rest financial challenges that have dragged down its shares since its floatation in 2018. However, in the 9M trading update, the group mentioned that wholesale volume would remain under pressure as demand has underperformed over the company's expectations. Also, the group reported that it is witnessing challenging trading conditions, mainly in the UK and Europe.

Also, despite a recent pull-back in the stock from the lower levels, it is trading approximately 57% lower from its 52w high of GBX 1,374.40 and trading well below its crucial long-term support level of the 200-day simple moving average price of GBX 760.7, which would be acting as a key resistance level for the stock.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 626.8 (as on December 06, 2019), while we look for the growth catalysts in near-term.

Motorpoint Group PLC (LON: MOTR)

London Stock Exchange-traded Motorpoint Group Plc is the UK-headquartered independent vehicle retailer. The group's operational interest lies in the distribution of the vehicle, which is approximately 2-years old and has covered around 15,000 miles. The group distribute vehicle of some of the well-known brands like Ford, Vauxhall, Volkswagen, Nissan, Hyundai, Audi and BMW, respectively.

Interim Financial Highlights: H1 FY20

Source: Co. Filings

During the first half of FY20, the group’s operating environment was challenging, with revenue grew marginally by 1% to £533.9m against £528.6m it posted in the H1FY19. Gross profit for the period under consideration slumped marginally by 0.7% to £40.2m against £40.5m reported in the year-over period. However, its operating profit slumped by 15.3% on a YoY basis to £11.1m on account of £1.7m surge in the operating expenses, although half of them were of non-recurring nature. EBITDA for the first six-months plummeted by 12.4% to £13.4m against the EBITDA of £15.3m reported in the first half of the corresponding financial year.

Pre-tax profit tanked 18.3% to £9.4m against £11.5m reported in the year-over period, which dragged the group’s basic earnings per share by 14% to 8.0p/share against 9.3p/share recorded in the same period of the corresponding previous financial year, respectively.

However, despite a lower performance it reported, the board has declared an interim dividend of 2.6p/share which was approximately 4.0% higher against the interim dividend declared in the first half of the FY19.

Stock Performance
 
Daily Price Chart (as on December 06, 2019), before the market close. (Source: Thomson Reuters).

On a YoY basis, its shares have handed a price return of 31.5%, up by 34% on a YTD basis, increased approximately 13% in the past three months, bagged around 9.5% in a month time and traded 2.25% higher in the last five trading session. The above performance reflects an uptrend in the stock.

At the time of writing (at 01:02 PM GMT), shares of MOTR traded 5 points or 1.84% higher at GBX 276. In the year-over period, its shares have registered a 52w high of GBX 295.0 and a 52w low of GBX 170.0.

Valuation Methodology


Conclusion
The group reported unfavourable financial results in the H1FY20 period, and trading conditions are also challenging due to Brexit related uncertainties. Also, the second half would again be going to be a challenging period for the group and group's performance would be below the market expectations. If Brexit gets delivered by January 31, there would be many changes in the rules and regulation that would halt the consumer spending for capital expenditure nature items.
From the fundamental standpoint, the group’s EBITDA margin for the FY19 stood at 2.8%, whereas industry average stood at 10.7%, operating margin at 2.4% against the industry median of 6.4%, Net Margin at 1.7% against the industry median of 3.0. Also, the group has higher balance sheet risks as its Debt-to-Equity ratio at the end of FY19 stood at 4.94, whereas industry median was at 0.31, which reflects the group's indebtedness is substantially higher within the industry.

So, based on the above rationale with the current price of the stock not sustainable with relatively poor financials, higher debt obligation and premium valuation, we have given an "Avoid" recommendation at the current price of GBX 276.0 (as on December 06, 2019, before the market close).
 
*All forecasted figures and ratios have been taken from the Thomson Reuters.

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