Can Aston Martin’s £653m investment kick-start its share price?

In an effort to pay off debts and strengthen its electric vehicle offering, Aston Martin is planning to raise £653m in equity capital. However, analysts are divided on the effect this is likely to have on its share price. 

Earlier this month, UK luxury car brand Aston Martin [AML.L] announced that it would be raising £653m through both new and existing investors in order to pay down significant debts and free up money to develop new models and electric vehicle (EV) technology.

Part of the investment will be funded by issuing 23.3 million new shares to Saudi Arabia’s Public Investment Fund (PIF), as well as a £335m rights issue from the PIF, Mercedes-Benz and chairman Lawrence Stroll’s Yew Tree consortium. The announcement came just five months after Stroll said the company had enough cash.

The Aston Martin share price fell to a record low of 351.17p immediately following the news on 15 July, although it has since recovered to 436.2p at the close on 26 July. However, the stock is still down 67.7% since the start of 2022.

“Markets reacted positively to news Aston Martin was shoring up the balance sheet with a big raise of cash. That’s an indication of how concerning the group’s financial position had got, with cash flow that's still got a year or two before it’s expected to turn positive,” commented Hargreaves Lansdown equity analyst Matt Britzman in a research note on 21 July. Britzman added that “the pumped-up war chest should help new CEO, Amedeo Felisa, push the revamped strategy forward”.

Aston Martin’s electric push

Felisa is the former boss of Ferrari and the third person to head up Aston Martin in as many years. His appointment will help “spearhead [an] electrified future,” a filing on the LSE’s Regulatory News Service said. The automaker plans to launch its first hybrid model, Valhalla, in 2024, as well as a fully electric car in 2025. By 2026, all new product lines are expected to have an electric powertrain option.

Aston Martin is unlikely to turn its back on the internal combustion engine [ICE] completely, however. Chief creative officer, Marek Reichman, gave an interview to Drive in April in which he implied that electrification wasn’t a viable long-term mobility solution.

“You will never be able to recharge an EV in two minutes like you refuel now. The convenience will never be there… “I see [ICE] living as long as it possibly can, as long as the legislation will allow, because there are customers who love and want those types of cars,” said Reichman.

As part of its journey on the road to electrification, the company revealed in March that it was working with battery startup Britishvolt to develop high-performance battery technology.

“Brand positioning could insulate it somewhat from the shift away from petrol, but electric is the direction of travel for automakers,” wrote Britzman in his commentary. It’s going to take until 2030 at the earliest for a full range of EVs to be made available, he added.

There are also questions about how much ground Aston Martin will lose to other luxury car makers already electrifying their line-ups. Volkswagen-owned [VWAGY] Porsche is out in front and just last week announced it was targeting making more profit from its EVs than ICE [internal combustion engine] vehicles. The German automaker is reportedly set to spin out its Porsche brand with a potential IPO in the fourth quarter of this year.

Execution is key says analyst

“The execution of the electrification strategy will be a key driver of long-term success, and we’re yet to see whether customers will come along for the ride,” argued Britzman. However, in the near term, the challenge will be “putting the new cash hoard to efficient use”.

Jefferies analysts aren’t entirely convinced on that front. According to a note seen by This is Money, the recent raise may end up devaluing the shares. They cut their target price on the stock from 750p to 530p, although this still implies an upside of 21.5% from 26 July’s close. The Aston Martin share price is “likely to remain volatile” until more details about how the raise will be put to use are released.

The stock has one ‘buy’ rating, five ‘hold’ ratings, one ‘underweight’ rating, and two ‘sell’ ratings, The Wall Street Journal data shows. The consensus target price is 789p, representing an upside of 80.8% on the 26 July closing price.