Currently reading: Analysis: Aston Martin is not out of the woods yet
Despite a big cash injection from Lawrence Stroll, the British luxury marque faces a tough future
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5 mins read
31 March 2020

It’s an old political cliché that a week is a long time in politics. On the stock markets, however, just a few hours can turn a company’s prospects upside down – as Aston Martin has recently proven.

Ironically, as recently as 23 January, it was reported that analysts at Citigroup rated Aston as a ‘high-risk, high-return’ bet based on the potential of the DBX, targeting a future share price of £6.

Since Aston Martin Lagonda plc was floated on the stock market in October 2018, its launch share price of £19 has been in decline, dropping to £11.56 on 14 December 2018.

It had taken less than two months for the shares to lose around 40% of their value, although many analysts felt the initial launch price of the shares was over-enthusiastic.

By 18 January last year, things had picked up a little before continuing their downward journey. This was perhaps a little surprising, because Aston was reporting a generally successful 2018.

According to its accounts, the number of ‘wholesale’ cars sold for 2018 was 6441, up from 5098 in 2017. The company sold 1785 V12-engined cars and 4471 V8s. Sales in the US jumped 38% and Aston’s revenue hit £1.1 billion, up 25%.

Excluding the ‘specials’ built by the company, the average selling price for its cars was £141,000. That’s high, but perhaps not high enough considering Aston’s incoming investment plans.

One surprise hiding in the accounts was that the cost of placing the company on the stock market was £136 million, helping to push annual profits down to just £68m.

On future product launches, the investor presentation was especially bullish. As well as the DBX crossover, the line-up included two new mid-engined supercars – the Vanquish and Valhalla – as well as an electric SUV and electric saloon from Lagonda in 2021 and 2022.

On top of that ambitious schedule, in addition to 155 examples of the battery-powered Rapide E, Aston was promising the DB4 GT Zagato continuation model, the DB5 Goldfinger continuation and two versions of the Valkyrie hypercar.

Clearly, this programme – as well as the costs of setting up the St Athan factory for DBX production – was ambitious in the extreme, especially for such a small company.

The share price continued its overall descent during the first half of last year, dropping to just £8.43 on 24 May before firming up to over £10 by July.

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But a trading update and profit warning from the firm on 23 July put an end to any hopes of a recovery. Aston revealed it had experienced a 25% drop in sales between April and June last year, with falls of 22% in the UK and 28% across Europe and the Middle East. Shares plummeted by 26% in a single day.

On 31 July, Aston announced that it had lost £78m in the first half of 2019, in contrast to a £21m profit in the same period in 2018. By 5 August, the share price had cratered to just £4.54, then £3.99 by 31 October. However, some confidence returned to investors towards the end of the year, with the price stuttering back up to £6.30 on 6 December.

That was the recent peak for the company, and one to which it is unlikely to return for quite some time. At the beginning of this year, Aston released its preliminary figure for the whole of 2019. Sales in the UK fell from 1798 to 1429 and in Europe from 1489 to 1074. Revenue went down 9%.

The rumour in the analyst world – one later confirmed by CEO Andy Palmer – was that Vantage sales had failed to hit the mark, which might explain the recent redesign. Even a rise in sales in the US couldn’t prevent Aston’s finances taking a beating. That ambitious new model programme was biting, with the company’s debt leaping from £560m to £876m. Serious alarm bells rang and the company’s cash position became incredibly precarious, making the planned roll-out of crucial models such as the DBX difficult.

Then came a rescue, of sorts, on 31 January, when billionaire Lawrence Stroll bought a 16.7% stake in the company for £182m, which was to be added to a £318m rights issue to give the company a £500m boost, get the DBX in showrooms and get the development programme for the new midengined cars well under way.

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Stroll’s plan, which made him chairman, confirmed the Valkyrie for this year, cancelled the Rapide E and pushed the relaunch of Lagonda back to 2025.

And then the coronavirus struck. Stroll took advantage of a well-placed clause in the original contract to renegotiate his offer, valuing the shares at £2.25 rather than the original £4 and taking a 25% stake. He also added an additional £25m to the original plan to give £55.5m in working capital in order to tide Aston Martin over.

Overall, Aston Martin intends to raise £536 million as announced today. £171m of that will be through Stroll’s consortium as part of their total investment of £262m, while a subsequent rights issue will also follow.  

Stroll’s new offer was, perhaps, based on the market price of £4.02 recorded on 30 January, and his investment pushed the shares up to £4.98. From there, though, it has been downhill all the way, as the world reacted to the spread of Covid-19.

After dipping as low as £1.20 during one day of trading, Aston’s share price ricocheted around under the £2 mark as day-traders took advantage of mini bounces. Despite the factory having to close as a result of the pandemic, the share price has gently risen above that figure since, but not by much. 

But the value of Stroll’s holding has essentially been halved. And with global car sales almost halting during March and revenue drying up, Aston’s situation now, once again, looks critical.

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Comments
7

31 March 2020

Stroll has deep pockets. He surely will want to see this through, having been so personally associated with the rescue plan. Aston Martin can be thankful for that.

If they can't make appealing cars though, you question the wisdom of prioritising Aston Martin. A well executed relaunch of Lagonda as an all-electric brand has the potential to reset the company.

31 March 2020

However you try and analyse Aston's problems it comes down to poor demand for their current cars.   Apparently Porsche sell more cars in Europe in a month than Aston does in a year globally.   That should give you an idea where Aston needs to be.

 

The V8 Vantage quickly went through its honeymoon period and that light refresh of the nose is there to try and boost sales again.   Problem is that it is a whole refresh it needs.

 

Marek Reichman's design just aren't working.

 

As for the cost of launching Aston on the stock market I believe that nearly £70 million of those costs were a pay-off to Andy Palmer.   I believe he had to sell some immediately to pay tax on them! 

 

And name another CEO who has remained in place when their share price has gone through a dotcom disaster like this.

31 March 2020

The comparison to Porsche is a little unfair, only about 20% of Porsche sales are of the 911(they have still sold double the amount of 911s than Aston has cars in the UK this year of course), the vast majority being SUVs and little sportscars which are priced well below where Aston Martin's brand wants to be to retain its cache (a third ofs its current sales are lucrative DBS sales, the customers of which have more to spend than your average 911 customer and may not want to pay that if you can get the same badge for £50k).  So in terms of strategy Palmer has it right, get a high value SUV out there rather than chase lower spec volume. The question then remains can they get the ramp up of production done in time to make the required money.

 

I even think the case against Reichman is unclear, the DBS and DB11 are hailed as triumphs and the vanquish quite the opposite. 2 out of 3 is a better rate of success than most of the design departments out there at the moment. Imagine how much better the roads would look if 2/3 of BMWs didnt have massive nostrils!

31 March 2020

Aston Martin might glide into the next set of serious problems, because of the Corona crisis. Stock might be cheap enough for Stroll to buy some additional shares, the stock market is also indicative for how people feel about the economy and their own financial prospects, including prospective AM buyers. How people feel about cars with big engines that emit a lot, may also rapidly change. The Corona crisis can even contribute to this. AM needs to have a sub-label with Cygnet approach. If the market is not gonna punish the brand, governments may. For instance, by raising taxes on big ICE cars.

31 March 2020

It's a shame that no matter what car company comes up within the design of a new car . The CEO is the one the buck stops with and should step down or resign as they give it the final nod for it to go into production. When you see all the cars no matter it is from Audi Fiat Toyota Ford etc designers should do the walk of shame for pushing such designs in the first place come guys get your act together.

20 April 2020

Can someone please explain to me why all charts show that the share price was around £2-3 in December while in fact it was above £6?? Cheers

20 April 2020

Can someone please explain to me why all charts show that the share price was around £2-3 in December while in fact it was above £6?? Cheers

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