The Aston Martin (LSE: AML) share price looks more like an old banger than a luxury sports car. The shares have fallen by at least 90% since Aston floated on the London Stock Exchange at the end of 2018.
Aston Martin’s latest survival plan involves a £653m share sale. This was announced on 15 July and is due to complete on 28 September. The cash will be used to reduce the group’s £1.3bn net debt and provide funds to support the development of new models.
I reckon this latest funding plan improves the odds of success for Aston Martin. But as I’ll explain, I have some concerns about buying the shares and would not do so until after 28 September, at the earliest.
Great brand, terrible investment?
At first sight, this situation may seem hard to understand.
As a brand, Aston Martin is as British as James Bond and just as desirable. The company’s Formula 1 team has helped to raise its profile and attract a new generation of fans.
A partnership with Mercedes’ performance arm, AMG, means that Aston’s tech is now cutting edge, too.
Despite all of these advantages, the company has been a disaster as an investment. Why?
In short, I think the answer is mismanagement, unrealistic expectations, and far too much debt.
A strong turnaround?
The good news is that I think many of these problems have now been addressed. Stock levels have been brought down to reduce the need for discounting — a no-no for luxury brands.
Aston Martin says its sports car models are fully sold out into 2023, while orders for the DBX SUV have risen by 40% this year.
The group’s model range has been updated and further new cars are planned.
The only area where things have continued to get worse is at the bank. Aston Martin’s reported a pre-tax loss of £285m for the first half this year. Net debt rose from £892m to £1,266m during the six-month period.
Is the Aston Martin share price cheap now?
It’s very hard to value shares in a business that continually loses money. I can’t look at Aston Martin’s past profits, because it hasn’t really had any since its flotation.
Broker forecasts aren’t much help, either. Although sales are expected to rise to £1.3bn in 2022 and £1.6bn in 2023, City analysts expect Aston Martin to report hefty losses in both years.
At this point, I think that all I can do is to consider the company’s own targets.
Executive chairman (and major shareholder) Lawrence Stroll hopes that by 2025, annual sales will have risen from 6,000 cars to around 10,000. Revenue is expected to have risen to £2bn, with underlying cash profits of £500m, excluding finance costs.
If Aston Martin can hit these targets without needing any further bailouts, then I would say the stock is probably cheap today.
However, I think it’s still a very high-risk situation. If I invested, I’d only buy the shares with money I was prepared to lose.
I wouldn’t rush in now, either.
In my experience, Aston Martin’s share price is likely to drop lower again when the new rights issue shares (which were sold at 103p) start trading on the market on 28 September.
If I wanted to buy, I’d wait until then.
