Aston Martin has raised around £110mn of net proceeds by issuing new equity shares at 100p per share. This represents a discount of 7.3% to the closing price on the prior day.
The group also intends to raise a further £100mn by issuing new debt. This debt will carry interest rates of above 10% on average, and will mature in 2029.
The combined £210mn of funds will be used to support the group’s “long-term growth plans” by providing “increased financial resilience.”
Due to a delay with its Valiant model, the group now expects to deliver around half of the 38 new Valiant models by the end of the year (previously the majority). As a result, full-year underlying cash profit (EBITDA) is expected to land in the £270-280mn range (2023: £305.9mn).
The shares fell 4.7% in early trading.
Our view
There’s no getting around it, Aston Martin’s in a tough spot. The luxury car company issued its second profit warning in as many months due to delays with its new high-end Valiant models. Full-year underlying cash profits (EBITDA) are now expected to land in the £270-280mn range, a backward step from last year’s £305.9mn.
The group has already bolstered its finances this year by issuing new debt and equity, as well as refinancing £1.15bn of debt at double-digit interest rates. Now, it has turned to investors once again, seeking an additional £210mn, with the funding split fairly evenly between debt and equity.
The high debt level and associated financing costs are a big problem. Double-digit interest rates show that lenders need to be compensated heavily for the high level of risk they’re taking on.
To make matters worse, the group still isn’t generating positive cash flows. That could spell real trouble if it runs out of funds to meet these obligations. As a reminder, debt investors are in the driving seat when it comes to claims on assets if Aston Martin fails to meet scheduled debt payments. Improving cash generation and reducing debt to a more comfortable level need to be the key focus, but we can’t rule out further disappointments.
To get finances back on track, Aston Martin has refreshed its core offerings with a new version of the Vanquish leading its revamped lineup. These cars have an average selling price of around £178,000, so remain out of reach for most consumers. Driving scale from the core portfolio is the real challenge.
There’s also a focus on selling more Specials, which are ultra-exclusive cars that retail at a much higher value than its core offering. There’s also a push to increase personalisation in these cars, which it’s hoped will boost both desirability and profitability.
The whole auto industry is currently under pressure and economic woes in China have seen volumes pull back in the region. Given the group’s lack of scale, making only around 6,600 cars last year, even a small reduction in volumes can have a big negative impact on profits.
An upturn in fortunes will rely on improving economic conditions to reignite demand, and to a large extent, that’s outside of the group’s control. In the meantime, the group needs to get a much tighter handle on costs to stem the financial bleeding.
We’re quite concerned given the weak balance sheet, struggling demand, and high rate of cash burn. While it’s already well below the long-run average, which could suggest upside potential if things go well, the valuation is likely to come under more pressure if supply chain disruptions continue to delay production.
Environmental, social and governance (ESG) risk
Most of the auto industry falls into the medium risk category in terms of ESG. Product governance, particularly around safety, and the carbon emissions from companies’ products and services are key risk drivers. Business ethics, labour relations and operational carbon emissions are also contributors to ESG risk.
According to Sustainalytics, Aston Martin’s management of ESG risks is average.
ESG issues are overseen by the board and overall disclosure is strong. There’s a robust environmental policy in place, with a commitment to net zero for scope 1 and 2 emissions by 2030 and scope 3 emissions by 2039 and has interim targets in place. However, AML doesn’t divulge sustainability-linked revenue and environmental impact isn’t systematically considered in the design phase. Although some of AML’s facilities are externally certified, scope is unclear and its product and safety programme needs improvement.
Aston Martin key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.