Aston Martin: Ongoing Weak Performance Is A Concern (OTCMKTS:AMGDF)

simonbradfield/iStock Unreleased via Getty Images High performance carmaker Aston Martin (OTCPK:AMGDF) has been a weak performing share, losing 96% of its value since listing in 2018. I downgraded it to “sell” in my March note Aston Martin: I’d Buy The Car Over The Shares (Rating Downgrade). Since then, we have had various clues to performance, notably the first quarter results last month. I analyse these below and maintain my sell rating. Debt Pile Continues to Alarm Me The company has been indebted throughout its existence on the stock market. Below is the year-end net debt, alongside the figure from Q1. As can be seen, there has been a significant increase in net debt even since last year’s end (covered in my previous note) and the end of the first quarter. Chart compiled by author using data from company announcements It was only last July that Aston Martin announced a £210m share placing in part to “accelerate net leverage reduction”, following a £654m equity raise the prior September (2022), with objectives including to “meaningfully deleverage its balance sheet”. Yet here we are, as the graph shows. Much of that debt is expensive to service. Even after a refinancing in March, net cash interest this year is expected to be £120m. Interest rates continue to be high post refinancing. The March refinancing involved $960 million aggregate principal amount of 10.000% senior secured notes due 2029 and £400 million aggregate principal amount of 10.375% senior secured notes due 2029.” Even if the business were running fine, these debt levels and the servicing costs would concern me for a company of Aston Martin’s size. 2024 Business Performance has Started Weakly However, at least on the evidence of the first quarter, business is not going fine. In that three-month period, total wholesale volumes showed year-on-year decline of a quarter, revenue fell 10% and the operating loss widened by 15%. Company Q1 trading statement On top of that, free cash outflow rose 61% to £190m. Company Q1 trading statement It is not all bad news: the lower fall in revenues than wholesale volumes suggests the company’s efforts to use its pricing power and optimise the mix of vehicles sold is bearing fruit. On balance, though, it is hard to see the quarter as anything other than very weak. The company maintained its 2027/28 outlook. That includes revenue of c. £2.5bn, adjusted EBITDA of around £800m and sustainably positive free cash flow. At the moment, they do not seem to be heading in that direction (and I have long harboured doubts about progress towards them, as I have detailed in previous notes). Why, then, the confidence? The company basically argued the first quarter was a blip as ceased production and delivery of its existing core models prior to ramping up production of new vehicles. It plans to introduce four new models to the market by the end of the year (that strikes me as aggressive for a company of its size though doable). How well the models are produced and sold remains to be seen. Recent experience in this regard is encouraging – the DBX launch went well and sales have been strong. Still, at this point, performance across 2024 overall seems to be based on confidence about a significant shift in product lineup. That makes me nervous. Shares Still Look Overvalued Despite their precipitous fall, I continue to think the share price here is hard to justify on current or likely short-term business performance. The company is losing money year after year, it is bleeding cash and while the net debt is a concern, even at the operating level it remains loss-making. Since my last note, we’ve had a wretched quarter. Management has an explanation for that, but whether it holds water will only be clear at the end of the year. For now, based on the data we currently have available, this does not look like a company that merits its £1.2bn market capitalisation. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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