Aston Martin Lagonda’s [AML] share price has hit the brakes since its IPO in October 2018, as reversing demand from the coronavirus pandemic bashes into its accelerating debt. Will first-quarter results herald a road to recovery?
Ugly is not a word that the manufacturer of cars associated with the glamour, elegance and power of James Bond is used to hearing.
But this was the market response to the 2019 results of Aston Martin Lagonda — 007’s favourite car — back in February, after it revealed a 53% year-over-year hike in pre-tax losses to £104.3m and a 9% fall in revenues; Aston Martin’s share price had slumped 18.2% by Monday 2 March’s close, since announcing their results the previous Thursday. Faltering demand across the UK and Europe sent the British company’s debt surging 56% year-over-year to £876.2mn — nearly as much as the entire year’s revenue of £997.3m.
Russ Mould, investment director at AJ Bell, said in a note at the time: “Full-year results from Aston Martin are as ugly as you can get. Sales have gone into reverse and profit has evaporated.” So where has the share price headed since then?
The weak financial performance sent Aston Martin’s share price spinning downwards. The stock closed February at just 108p — a far cry from the 580p it closed at after its IPO in October 2018. Since then, the stock has gradually withered away as a result of profit warnings and emergency fundraisings.
Aston Martin's debt - a 56% YoY rise
Will its earnings report tomorrow help accelerate Aston Martin Lagonda’s share price?
A rocky read ahead
“It may still be James Bond’s favourite model but shares in luxury car maker Aston Martin Lagonda appear to have real engine trouble,” Mould told Shares Magazine in February.
The coronavirus has only added to those despairs. As a result, demand stemming from China — Aston Martin’s fastest-growing market in 2019, representing 9% of total sales — has faltered considerably.
“It may still be James Bond’s favourite model but shares in luxury car maker Aston Martin Lagonda appear to have real engine trouble” - Russ Mould, investment director at AJ Bell
The UK company warned that both the supply chain and customer demand had been affected by the virus, as it highlighted the “increasing uncertainties and risks to the financial performance of the company in 2020”. It went on to close two factories in the UK, furloughing staff.
When the company announces its earnings tomorrow, it is expected to reveal a huge sales blow.
Indeed, sales of new cars in the UK plunged by 97% in April, as the lockdown dampened demand, according to the Society of Motor Manufacturers and Traders. Only 4,321 cars were registered, which was the lowest monthly figure since 1946.
UK's decline of new car sales in April
It could, therefore, be likely that a hit to sales is expected by the market so could be priced in to the share price.
However, the company has been on a long and tired road. In its 107-year history, Aston Martin has gone bust a remarkable seven times, The Guardian reports. Can it manage to steer a fast U-turn to a brighter future?
Chairman seeks to restart operations
Last month new chairman Lawrence Stroll — who has a 25% stake in the business — attempted to shore up some of the damage to its finances by completing a £560mn fundraiser. Stroll vowed that he would aim to make it “one of the pre-eminent luxury car brands in the world”.
Aston Martin will focus on Formula 1, delivering its first SUV — the DBX — this summer, as it aims to battle with other marques such as Ferrari [RACE].
Aston said its order book remains significant, with over 2,000 orders for the DBX. Although it does face intense competition from established rivals, including the Lamborghini Urus [NSU] and the Bentley [VOW] Bentayga.
Earlier this month it also announced the reopening of its manufacturing plant in St Athan in South Wales, though workers will still have to respect social distancing rules. With operations at Gaydon recommencing later. The question of whether this will lead to reduced productivity and volumes will likely be revealed in the weeks ahead.
|Operating Margin (TTM)||0.43%|
|Quarterly Revenue Growth (YoY)||-12.60%|
Aston Martin share price vitals, Yahoo Finance, 12 May 2020
Given the uncertainty both within the company’s balance sheet and customer demand going forward in the anticipated global recession, analysts are not ready to get on board the Aston Martin turnaround.
Goldman Sachs, which helped lead the Aston Martin float two years ago, now has a sell rating believing Aston Martin’s share price should be valued at just 40p. It fears that the recent money raised will not be enough, stating that Aston will be burning through cash for the next four years. Deutsche Bank, which was also a lead broker in the IPO, believes a 45p share price valuation is reasonable.
Aston Martin has been shaken but whether it has stirred itself into the correct strategic response only time will tell.