Top City analyst says car firm Aston Martin may have to tap shareholders for fresh funds for a fourth time
Luxury car firm Aston Martin Lagonda may have to tap shareholders for fresh funds for a fourth time, a top City analyst has said.
James Congdon, who runs the Quest research unit at broker Canaccord Genuity, said Aston Martin’s equity does look ‘vulnerable.’
‘We increasingly can see a scenario where the company would need to raise capital again,’ he added.
In the slow lane: Since the float, Aston Martin’s stock price has collapsed almost 90 per cent
Congdon was the sole City analyst to highlight that Aston Martin – which now has its own Formula 1 team – would need to raise fresh funds several times after the business floated on the London Stock Exchange in 2018.
Since the float, the company’s stock price has collapsed almost 90 per cent, leaving the maker of James Bond’s favourite automobile with a valuation of just £1.4billion.
One reason that Aston Martin’s shares have performed so poorly is because it has been forced to raise cash several times over.
In 2020, for example, the company raised £540million through a rights issue as part of a deal that saw Lawrence Stroll, the billionaire retail tycoon, become chairman of the business.
Then Aston Martin raised another £152million in June 2020 and a further £125million four months later, both via equity placings.
Earlier this year, Aston Martin unveiled a profit warning as part of an unscheduled trading statement.
It said operating earnings would be about £15million – about 10 per cent lower than expected – after Aston Martin failed to deliver as many as £2.5million worth of the Valkyrie hypercars it had promised.
The company said it had as much as £420million in cash at the year end.
However, Congdon said: ‘Despite the increase in sales of the DBX in 2021 and the company receiving customer deposits for their Valkyrie hypercar, consensus estimates on Bloomberg forecast that the company will continue to burn cash in 2022 and 2023.
‘The company did have £506million of cash at hand (but importantly gross debt of £1.3billion) in July but this has already fallen to £420million in those six months – an annualised cash burn of £172million.
‘Capital expenditure commitments are climbing at a time when the company is switching to manufacturing electric models.’
Congdon added: ‘With the growing capex [capital expenditure], rising costs, the current cash burn rate and a balance sheet not strong enough to shoulder any more debt, we wouldn’t be surprised if the company sought to raise equity in the near term.’
The number of shares held by short sellers – investors betting the company’s stock price will fall – increased to 2.8 per cent last week after Parvus Asset Management Europe emerged as the latest hedge fund with a position.
Two other hedge funds that have disclosed short positions are Blackrock and Gladstone Capital Management.
Aston Martin, founded in 1913, has had a turbulent history. Its cars became a British cultural icon after a DB5 was used as one of James Bond’s vehicles in the 1964 film Goldfinger. But the company has reportedly been through seven bankruptcies.
A spokesperson for Aston Martin said: ‘Aston Martin Lagonda has no requirement or plans to raise additional funds.’
Meanwhile, a potential strike has been avoided. The threat of industrial action emerged last month over plans to close a defined benefit pension scheme. Unions said it could have led to workers losing £100,000 in retirement income.
But a deal to provide employees with cash payments and shares in Aston Martin has paved the way for changes in the scheme.