Fundamental Analysis of Aston Martin - AML

Hello everyone!

I’ve been doing some analysis while being furloughed and figured you guys might be interested in having a read.

Let me know what you think! I love all feedback. Hopefully it’ll inspire some questions, I’m looking forward to what you have to say.

The stock has been in a downward spiral since it became publically available back in October 2018. Let’s see who is in the driver’s seat and where they are going.

Who is Aston Martin Lagonda?

Aston Martin Lagonda is an independent luxury car group. Over 100 years of experience across two brands. One of the few British car companies left, much less publically listed.

Aston Martin, created in 1913, is named after a race when Lionel Martin took on the Aston Clinton Hill Climb in and won. They brought Lagonda in 1947. Both companies have a rich history of racing and fast luxury cars. We’ll find out if that is enough for them to survive in the modern world.

AML makes its money by making luxury cars such as the DB range. They don’t have as robust an organisation as some of the manufacturers who control more of the supply line to a wider audience. Their sole focus is on producing and selling new cars, both to wholesale and retail (online and with their showrooms.)

Aston Martin has also recently (rejoined) Formula One, however, this is not a revenue opportunity, rather an exercise in brand exposure.

The Starting Line Up

Not all car manufacturers are equal, and some have a bit of a head start when it comes to their fundamentals. To keep it brief and help frame the investment, we’ll give each firm a quick MOT.

Aston Martin
Horrifically poor quality, high debt, no shareholder payouts. Even with the massive share price slashes, still an expensive buy. An extremely weak outlook for future revenue and earnings.

Ferrari
A good comparison as both companies are luxury brands focused on racing. High profitability but also heavily loaded with debt. Very expensive to buy shares right now. Also, an extremely weak outlook for future growth.

Volkswagen
Not as profitable as their peers but paying money out to shareholders makes this more attractive. They are considered very cheap to pick up right now as well. They have a weaker outlook but still mildly better than the others here.

We also have Ford, BMW, GE, Daimler, and even Tesla. Aside from Tesla which doesn’t follow the fundamental rules, the larger companies largely follow the same pattern of Volkswagen. Currently at a discount due to COVID-19. However, Aston Martin is not considered cheap like it’s peers.

The Share Price

I mentioned the declining price since they became a public company.


Source: Guardian Aston Martin’s troubled flotation

Plagued with false starts and cash flow troubles, Aston Martin finally had some good news in 2018 when they reported their first-ever profitable year. However, the rose-coloured IPO was short-lived.

What has been causing the recent issues though? How hard hit was Aston Martin?

Aston Martin Lagonda confirms that it will be raising gross capital proceeds of £536m through an equity raise, including a private placement of shares for £171m to the Lawrence Stroll led Yew Tree Consortium (as part of their total investment of £262m) and a subsequent rights issue.

Show Me The Money

Why have they raised additional capital? The share price woes lead us perfectly onto the financial situation at Aston Martin. In the same announcement, AML had to share some uncomfortable news.

COVID-19 has hit them hard and stopped all production on the new SUV, delaying their entrance into the market even more. Given how much is riding on this and not letting customers cancel their pre-orders, it’s a touchy time.

It gets worse. Due to the regulation, a company is either has enough working capital for the year or it doesn’t. There is no middle ground. Aston Martin has been forced to announce they do not have enough working capital and the investment was part of a cash injection to solve these issues.

They have a few options to help provide some comfort. Additional funding facilities of approximately £150 million. The option until 8 July 2020 to draw up to $100 million of the Delayed Draw Notes issued on 8 October 2019. Discussions with the UK government concerning the potential support packages available to businesses to trade through the pandemic.

When it comes to financing you want to make sure you have the best people on the job. Mark Wilson, the Chief Financial Officer, has now stepped down. Aston Martin currently has an interim CFO. Additionally, three directors are stepping down and not seeking re-election. Meaning the company setup is no longer compliant, thus a new search for independent board members is underway along with trying to source a CFO.

After some heavy investment into a new factory, and with pre-orders for their first SUV sold out, this is the worst time for Aston Martin to deal with a lockdown.

The lack of diversification across their revenue lines, and issues with potential customer cannibalisation, are all impacting their ability to sell more cars. Compound this with the financing issues and they can’t make the new cars to sell.

In 2019 they also started a voluntary redundancy and early retirement programme actioned which resulted in a 22% reduction in year-end headcount. The main is by 2021 to save over £10m in operational costs. With an operating profit margin of 0.05%, they are not in a strong position when it comes to profit generation.

With £19m cash flow from their operations and £243m coming in from financing activities, cash flow conversion is a serious issue for them. They are currently in almost £1bn worth of debt and currently reporting a pre-tax loss.

Buy While It’s Cheap?

Sometimes buying a distressed company means you can pick it up cheap. As Mr Buffett likes to say, buy a great company at a good price.

Sadly, due to the loss-making nature, high revenue, and poor cash flow, Aston Martin is not an attractive company based on its share price ratios. Price/book of 27.28 and Enterprise value/EBITDA 28.50.

First Place Finish In The Future?

Often when I talk about distressed assets I talk about it as an opportunity for a long term investment. Taking a risk now to buy the company on the cheap to enjoy its future growth.

This is not the case with Aston Martin.

With very weak future revenues, (the deposits for the new cars have already been taken and it’s assumed a large number will convert already.) Earnings in the future are also very weak, the operational issues have not been solved and the margins are too tight.

Aston Martin need to streamline the business and they recently did some expansion, plus losing key members is not helping the transition.

The sell-side analysts have a very disappointing outlook. With many showing a lower target price than Aston Martin is currently trading at.

With the Q1 2020 results expected this Wednesday, 13th May 2020, we’ll see the full scope of the damages.

Why A Sell?

If I was holding Aston Martin I would be looking for my moment to sell sooner than later. I have a very low expectation for the announcement this Wednesday, and I don’t see a recovery any time soon, if ever.

The best outlook for Aston Martin would be an acquisition. However, who would want to buy the brand while it is heavy with debt and struggling to optimise its business?

The added brand exposure from the Formula One is unlikely to move the needle and might be a bigger expense than expected. The bottom teams are paying more money than they make, and that’s likely how Aston Martin will start the session.

Let me know what you think about my write up and analysis. Any parts you would want me to focus on, or bits you want me to cover?

Stay safe and thanks for reading!

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Hi good analysis and for making the effort to do so. I was considering buying AML shares but then did a little research and found its not worth it. It’s projected to make losses and not be in a profitable situation for a few years. Ferrari looks a better buy so I might wait for another dip to buy some shares.

Thanks

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Ferrari is a better company in terms of managing their expenses. The fact they are highly profitable and financially stable compared to a lot of manufacturers is a good shout.

Plus they get paid by Formula One for taking part now!

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Meanwhile, a ‘Long-Standing Team’ payment is acquired by Ferrari alone worth $73m, meaning the Scuderia team has received the most money among all teams on a consistent basis since the current prize payment structure was introduced back in 2013.

Very nice analysis :wave:

I got some BMW shares few weeks ago, it was in a good price range, it has good dividends and they have already some know-how on electric cars, sounds a good long-term hold.

Really missing more topics likes this and less chart-hackers topics :smile:

Cheers.

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Aston Martin should follow the smartphone brand model, be high end but have just one device that can be considered affordable for your brand and peers. If they can’t make a great car that competes with the BMW 5 series, Mercedes E class or Audi A5 then they are done.

Perhaps it’s time to sell my shares :eyes: I felt confident they could claw their way back in time but now I’m not so sure!

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Wish you could do this for Rolls Royce too…:crossed_fingers:t2: Love to hear people’s opinions.

Rolls are heavily in debt and I would put them in the distressed companies pile. However, unlike AML they are a bit more diversified as they are involved in the defense sector. In the short term they are too hot to handle. However, as soon as soon as people are confident enough to start flying around the world and the aerospace industry returns to BC levels they will be fine.
Disclaimer :blush: this by no means constitute investment advice it’s for informational purposes only :grin:

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They tried this … they attempted to sell a tiny car for the people, but ended up being more of a gimmick.

Check it out:

Essentially was parts from another car, rebadged, and they wanted to charge £30k.
Laughable really.

I still can’t bring myself to sell my shares in fact when they keep dropping I top up. Risky I know. Long hold? Oh god yes.
It’s more a personal stock hold for me…

Long as they weather the storm which I believe they will as have had to made a lot of redundancies and pull back spends then they’ll be back making plane engines in no time :crossed_fingers:t2: Going to be a long wait but I feel confident.

30k for that?? :face_with_raised_eyebrow: it’s actually pretty nifty looking for city driving but the price tag seems plucked out of thin air! :eyes:

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I sincerely hope that they do turn things around at it all works out for you. But as a precaution, I probably wouldn’t keep pumping more money into them. It would be better to diversify and consider other companies especially ones that have a good debt to equity ratio as they are the best ones to weather the storm that’s about to hit the market

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You’re right. As I’m quite convinced there will be another out break so need free funds then. If there isn’t then at least I have free cash set aside in my portfolio. Not a bad thing. I’m pretty cautious.

I think I made myself sound far too flippant, I don’t top up as readily as I made it look. Quite a careless reply from me.

I’m set with them now. See what the winter brings.

I sold Aston Martin today at a profit too decided not to gamble in too many automobile companies. One is enough for me in the UK market.

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Congratulations and well done. On a side note, I meant the recession which is coming whether there is a second wave of corona. In fact, I think it’s here… :blush:
So maybe rather than keeping cash, maybe buy some gold :wink: that way you will protect the value of your money :+1:t5:
Ps. Not investment advice, just thinking out loud, on paper :joy::joy:

Ah I see. Well there maybe a recession followed by a second wave. Goodness how depressing do I sound :sweat_smile:
I’m hoping to buy a house in this recession. Who knows it maybe like 2008! Now that was a good time to buy a house. 100% mortgages were a thing - I hope they’re a thing again.

I have money in a gold mine and hold physical gold :stuck_out_tongue_closed_eyes: love the stuff!!

Haha that’s okay, I love out loud thoughts.

PS sorry for digressing the threads original aim. Oops.

I think you are both taking the best approach to managing you portfolios. Concentrate on the risk and the profit will take care of itself.

Australia is seeing new outbreaks occur, and they apparently had managed to get infection rates down to 0. So resurgence seems likely, and as soon as September hits, all I can see is bad news after bad news. :ship: Choppy times ahead :surfing_man:

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Indeed, so now would be the time to start going defensive :+1:t5:

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Thank you, I’m still learning so much but also going with my gut feeling too, it’s telling me to be play very carefully. More so now than the last few months.

I’m happy to weather some storms but I can’t possibly handle them all. I’m no captain :eyes:

Batten down the hatches :ocean:

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Hahaha this is poor of them,
Which car was under the hood?
Reminds me of the Mercedes X-Class and how it was a Nissan with Mercedes branding.

Yes, it was a toyota yaris/aygo or something like the entry ford model. I forget exactly.

Either way, it was a £10,000 car rebadged as a £30,000 aston.

and to be frank, you have to be a very different kind of individual to take the trouble to go to an Aston Martin dealership, look at all the exotic cars, then decide to go with that one lol.
I think this was launched when it was the craze to go smaller, everyone in London wanted a small smart car or similar and this was Astons attempt to get a foothold into that market.