Interactive Investor

Aston Martin stuck in reverse as shares crash again

Ranking as one of the most disappointing IPOs of all time, Aston is struggling to stop the rot.

7th January 2020 14:24

Graeme Evans from interactive investor

Ranking as one of the most disappointing IPOs of all time, Aston is struggling to stop the rot.

Aston Martin Lagonda (LSE:AML) shares spluttered again today after poor Christmas trading triggered the luxury car maker's second profits warning since its ill-fated and overpriced IPO in 2018.

The 15% fall to 440p unwound a chunk of the gains seen in recent weeks after speculation that billionaire and Formula One motor racing financier Lawrence Stroll might be preparing to take a significant stake in the business.

Aston Martin confirmed today that it remains in discussions with potential strategic investors, without naming the parties. The prospect of equity investment means possible dilution for shareholders, who have already seen the value of the company collapse by 75% since the IPO priced shares at a lofty 1,900p just 15 months ago.

The decision of investors to either sell up or steer clear since then was endorsed by today's unscheduled trading update, with CEO Andy Palmer describing 2019 as a “very disappointing year” after core wholesale volumes declined by 7% to 5,809.

Challenging trading conditions continued into the peak delivery period of December, resulting in lower sales, higher selling costs and weakening margins.

Source: TradingView Past performance is not a guide to future performance

For the 2019 financial year, this will now mean underlying earnings of between £130 million and £140 million with a margin of 12.5%-13.5%, compared with 22.1% the previous year. The company posted underlying earnings of £247 million in February's maiden results.

The decline also reflects a reliance on customer financing support, as well as the impact on its average selling price from a shift towards the Vantage model from higher priced versions. In addition, December's post-election rally in sterling has increased FX headwinds.

Aston Martin has responded with a cost saving programme alongside a focus on returning dealer stock levels to those more normally associated with a luxury company.

There are some bright spots in today's update, however, with the order book for its DBX sport utility vehicle building rapidly to about 1,800 cars since its launch in Beijing in November.

The family-focused car will enter the UK's already crowded 4x4 marketplace at a price of £158,000. Manufacturing is at the new St Athan facility in South Wales, with production due to start in the second quarter of this year.

The DBX has long been central to Palmer's drive to position the company for longer-term growth by increasing the manufacturing footprint and expanding the product range beyond the three current core models — the DB11, Vantage and DBS Superleggera.

His plan also includes the company's first full electric vehicle, the Rapide E, which is scheduled for launch in 2020. The Gaydon-based company will also be looking for a little help from 007 over the next year as four Aston Martins are set to feature in the next James Bond film, which is due for release the first half of 2020.

DBX investment in the St Athan plant and in future products means that net debt for the year-end is expected to be around £880 million, up from £560 million at the end of 2018.

The company recently bolstered its balance sheet through a US$150 million debt raise, although as this came with a 12% coupon the net interest guidance for 2019 has risen to £83 million.

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