Aston Martin had a rough 2019, before kicking off the new decade with yet another profit warning. Will Q4 earnings allow for a more optimistic share price outlook?
Aston Martin Lagonda Global Holdings [AML]
is going to have to work doubly hard to impress share price investors when it reports Q4 earnings on 27 February, after experiencing one of its worst years yet in 2019, where its market cap was slashed in half and its share price fell by 65%.
Slow sales, lagging production numbers and high levels of debt have contributed to the company’s share price losing near 78% since its IPO in October 2018 — when it priced itself at £19 — up to 20 February.
Aston Martin is now hoping that a new deal with Canadian billionaire Lawrence Stroll will bail it out of a tough situation, and see it share price rise as a result. Stroll has offered to buy up to 20% in the company, and plans to join the board as executive chairman. Aston Martin also plans to raise £500m with a rights issue from existing shareholders.
Share price depreciation since IPO
A “very disappointing” year
On 7 January, the luxury carmaker issued a profit warning, saying that it will pull in adjusted profits of between £130m and 140m for 2019 —just over half the £247m it made the previous year and a long way away from the £200m expected by FactSet. By the end of the next day, the share price had fallen by a total of 15.8%.
The carmaker blamed a decline in wholesale volumes, its average selling price and higher marketing costs for its latest lower expectations. Reports from the first nine months of 2019 show that Aston Martin racked up a pre-tax loss of more than £92m, according to The Guardian.
The company’s Q3 earnings showed that operating profit fell 58% from a year prior to £10.5m. Its adjusted EBITDA figure arrived at £47.7m, 12% lower year-on-year, while vehicles shipped for the quarter came in 16% lower at 1,497.
Company CEO Andy Palmer blamed the losses on tough market conditions in the UK and Europe as well as pressure from the Brexit fallout. He also stated that Aston Martin’s best-selling model, the Vantage, which accounts for two-thirds of total sales, is on the lower end of its price scale. Overall, he summed the year up as “very disappointing”.
What’s expected for Q4?
The company lowered its deliveries guidance for 2019 during its Q3 statement, saying it now expects wholesale shipments to fall below the previous guidance of 7,100 to a range of 6,300 to 6,500 vehicles. Combined with its profit warning in January, full-year figures are likely to be “disappointing”, as the company admitted earlier this year.
Factors that could drive up shares on earnings day include more details on its new deal with Stroll, as well as action plans on how it is going to recoup value over the next year.
When the news landed on 31 January that Stroll is set to buy up to 20% of Aston Martin, shares jumped up by 25%, before gradually slipping back. Stroll will offer a much needed cash injection to the company and is expected to pay £182m for his stake in the company. He has also suggested that he will rename his Formula 1 team after Aston Martin.
Stroll's proposed stake in Aston Martin
A short-seller’s paradise?
In August 2019 hedge funds have took record short positions in the debt and equity of Aston Martin, according to a report from the Financial Times. This is despite the fact that taking such a position results in large fees for these firms.
IHS Markit Analyst Sam Pierson said the high cost of borrowing showed a “willingness to pay” among hedge funds taking positions against the company.
Furthermore, the share price could fall a further 40% after the Stroll news landed, according to Rupert Hargreaves, writing in the Motley Fool. “It might be better to avoid the Aston Martin share price for the time being,” he said. “Only time will tell if the latest fundraising can stabilise the business so it might be better for investors to stay on the sidelines for the time being.”
Elsewhere, Reuters Breaking Views columnist Dasha Afanasieva stated that “it’s unclear how the new plan will affect [the company’s] financial performance.” She said that those shareholders will have to “stump up more cash or face dilution” despite seeing the share price slide nearly 80% since the company’s 2018 IPO. “The eject button may still jam,” Afanasieva said.