I don’t know about you, but I’m beginning to think luxury carmaker Aston Martin Lagonda (LSE: AML) may not turn out to be the greatest investment.
Sarcasm aside, today’s share price crash following the release of its latest trading statement, and news of another fundraise, are yet more evidence as to why I’d avoid the shares like the plague.
Making “good progress”
Perhaps I’m being harsh. After all, the company has said it’s continuing to make “good progress” on realising its potential and becoming “a true luxury company.“
While trading understandably “remains challenging” in wake of the pandemic — sales are expected to be lower in Q2 compared to Q1 — there are a few green shoots to mention.
First, over 90% of the firm’s dealer network is now open, although only 50% are operating at full capacity.
Having completed all trials and commenced production at its St Athan facility, Aston Martin also said it was also on schedule to release its new luxury SUV (the DBX) in July. The order book for this new vehicle was today described as “strong.“
In addition to this, the company has reduced the amount of cars in showrooms in an effort to “regain price positioning and exclusivity.” By the end of May, unsold dealer stock had fallen by 617 vehicles.
Commenting on today’s statement, new executive chairman Lawrence Stroll said that he was “enthusiastic and confident” about the firm’s multi-year plan to revitalise the company. I’m somewhat more sceptical.
Show me the money!
Of course, the problem with Aston Martin has never been the cars. The problem has always been the finances. On this front, there was more bad news for existing holders today.
Despite taking “decisive action” to get costs and investment under control (including the furloughing of employees), the company has once again been required to go cap-in-hand for money. This isn’t surprising — the company hinted as much last month.
Having been approved for a £20m loan from the government via its Coronavirus Large Business Interruption Loan Scheme, Aston Martin will now seek to raise roughly £190m by selling shares worth just under 20% of the business. Another $68m will be accessed from a credit line at a very high 12% interest.
If all this jargon sounds confusing, don’t worry. Just know that Aston Martin remains in a pretty precarious financial position. Net debt at the end of May stood at £883m. That’s only slightly less than the value of the company itself. It’s also a truly rubbish situation for those already invested, as the value of their stakes is diluted again.
Avoid Aston Martin
Aston Martin makes beautiful cars. Period. It’s performance on the market since listing, however, is akin to an old banger. It’s also a cautionary tale for all investors. It doesn’t matter how great the product is. Take the time to look beyond the glitz and glamour before pressing the ‘buy’ button.
The company will release its interim numbers for the first six months of 2020 on 29 July, shortly before new CEO, Tobias Moers, takes the wheel. It’s possible his arrival could prove the point at which the shares gain a surer footing. I wouldn’t want to bet on it though.
Unless you enjoy risky stock market rides, I’d continue to steer clear of Aston Martin.
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