What next for Aston Martin after crucial fundraising drive?
“Up to half” of money raised will be used to repay existing debt
Share price dipped to £1.73 after rights issue yesterday, in which Saudi Arabia took a 16.7% stake in the firm
Aston Martin had to suffer the indignity of seeing its shares trade at just £1.73 each by the end of Monday, down from £4.80 at close of play on Friday, after it released new stock as part of a previously announced bid to raise £654 million and steer itself away from its latest financial disaster.
The new price reflects the dilution of existing shares but highlights just how low the company has fallen after it first listed on the stock market in a blaze of optimism back in 2019, when its shares were listed at £19 apiece.
The initial public offering (IPO) valued the company at more than £4 billion, but after a brutal three years that have included two substantial changes in ownership, the company’s market capitalisation has fallen to just over £500 million.
The new share issue includes a £78m cash injection from Saudi Arabia’s sovereign wealth fund, the PIF, that instantly gives it a 16.7% stake in Aston Martin and two board seats.
The Saudis' stake is the second largest after that of company chairman Lawrence Stroll. The billionaire's Yew Tree Overseas Investment Fund drops to 14.2% ownership, while Mercedes-Benz’s stake is diluted to 9.7%.
The newly raised money will used in two ways. “Up to half” of will be used to repay existing debt, which as of the end of June stood at a whopping £1.28bn, while deposits from customers totalled £93m, Aston Martin said in its share prospectus. Paying down some of its debt alone will save it £30m annually, it said.
Aston Martin’s debt mountain was listed under the risks laid out to potential buyers of the new share issue, with the company admitting it “placed the Group at a competitive disadvantage as compared to its competitors, to the extent that they are not as highly leveraged".
The rest will be used to “maintain a substantial liquidity cushion” as Aston Martin spends to overhaul its ageing sports car line-up against various global headwinds.
Aston Martin’s core front-engined sports car line-up, although frequently added to with low-volume specials (most recently the V12 Vantage Roadster), is getting long in the tooth. The DB11, the first of the three to be replaced in the previous incarnation of the company, run by ex-Nissan executive Andy Palmer, was first unveiled back in 2016.
Aston Martin has promised that the DB11, Vantage and DBS will all be revamped next year, “offering substantially new styling and electrical architecture”, according to the share prospectus.
Beyond that, Aston Martin has promised the mid-engined Valhalla plug-in hybrid supercar for launch in 2024 and its first EV in 2025 on an electric platform that will eventually be used for the majority of its cars.
That development programme might look daunting if it weren’t for agreement inked with Mercedes to supply “electric and hybrid powertrains” going forward, increasing the partnership that already puts Mercedes as the company’s biggest supplier. Aston Martin called the use of Mercedes’ technology “critical” to the development of its next generation of cars, which means its relationship to the German giant is held above all others.
Aston Martin intends to spend £300m per year, paid partly from cash generated by car sales and topped up by this latest raise, on capital expenditure to update the range and and spark enough consumer interest to boost overall wholesales to 10,000 per year by 2024/2025. Last year, Aston Martin managed wholesales (ie sales to dealers) of 6178. In the first half of 2022 it sold 2676, suggesting it will fall below 2021's total this year.
Not only does Aston Martin have to increase sales, but they have to be healthy sales as well, driven by desire and not discount. Investors have accused the previous management team of dumping stock on dealers ahead of the 2019 IPO, leading to a bonfire of value for both the cars and the stock price as those dealers slashed prices to generate demand.
Aston Martin claims to have more than doubled its average selling price, excluding specials, from £70,000 in 2007 to £150,000 last year, and is aiming for an average contribution margin per car of around 40%, up from 30% last year (contribution margin doesn’t include all a company’s costs, hence Aston Martin's £76.5m loss last year).
The current management team, led by former Ferrari CEO Amadeo Felisa, reckons it “now holds optimum levels of stock with supply aligned with demand” and boosted the average selling price to £164,000 in the first half of this year, although that wasn't high enough to move it into profit for the first half of the year.
Aston Martin also claims to have got a handle on costs, streamlining production at both Gaydon in the Midlands and St Athan in South Wales (the latter home to production of the DBX SUV) and cutting employee numbers to 2342, down from 2913 back in 2019. The number of line stations within the production halls in both sites have also been drastically reduced, from 80 to 23 in the case of Gaydon.
The cash boost from the new share issue will mean Aston Martin lives to survive another day, but not all investors were convinced.
Financial analysts Mare Evidence Lab wrote on the Seeking Alpha stock-aggregator website that it required proof that Aston Martin’s own medicine was working before recommending the stock to its investors.
“Looking at the medium-term guidance and Aston Martin's previous track record, we find it very hard to justify a buy rating,” the company wrote. “We prefer Ferrari.”