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Aston Martin - 653m pound investment to strengthen balance sheet

Aston Martin has announced intentions to raise £653m from a range of new and existing investors.

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Aston Martin has announced intentions to raise £653m from a range of new and existing investors. The group plans to use up to half of the proceeds repaying debt, with the remainder supporting future capital expenditure. Net cash after paying down debt is expected to be around £500-£600m.

The group also provided an update on first half trading and expects 2022 performance to be in line with previous guidance.

Demand remained strong across product lines and average selling price continued to increase. GT/Sports cars sold out for 2023 and DBX orders up 40% year-over-year.

Supply chain disruption impacted volumes and resulted in working capital outflows that are expected to impact cash flow in the first half

More details will be released with the group's first half results on 29 July 2022.

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Our view

Markets reacted positively to news Aston Martin was shoring up the balance sheet with a big raise of cash. That's an indication of how concerning the group's financial position had got, with cash flow that's still got a year or two before it's expected to turn positive.

The pumped-up war chest should help new CEO, Amedeo Felisa, push the revamped strategy forward. He steps into a leaner organisation, thanks to ''Project Horizon,'' which aimed to cement the brand's image as a top-tier vehicle maker and improve efficiency by offering made-to-order cars.

The strategy shift included a complete overhaul of the way Aston Martin sells cars. The group ran down dealer inventory levels, helping demand outpace supply. This supported stronger pricing and added to the cachet that comes with buying an Aston Martin.

The group's also focused on selling higher-margin Specials. Customers sign up and pay a deposit for these rare models before they're built, allowing for tighter working capital control. The cars have also become cheaper to make thanks to efficiency improvements.

Demand's been strong so far this year, with full year targets intact. Though that'll require an improvement in the second half, given volumes need to more than double those sold in the first half to reach target.

Management's targeting annual revenue of £2bn, with underlying cash profits of £500m by 2024/25. That will require Aston Martin to move roughly 10,000 vehicles per year - 52% more than what's expected in 2022. That's not out of the question, 4500 DBX units are expected next year with that expected to then push higher. The remainder's expected to come from refreshed front engine models due for release next year, which have performed in the past following a revamp.

Brand positioning could insulate it somewhat from the shift away from petrol, but electric is the direction of travel for automakers. The first hybrid cars are pencilled in for 2024 release, with a full battery Aston expected a year later. It'll take until 2030 for a full range of electric vehicles to be available though.

Near-term, the group looks likely to deliver on its promises. But the execution of the electrification strategy will be a key driver of long-term success, and we've yet to see whether customers will come along for the ride. Putting the new cash hoard to efficient use is the challenge from here, and that's not an easy task.

Aston Martin key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

First Quarter Results (4 May 2022)

First quarter revenue rose 4% to £232.7m, reflecting price increases. This offset the expected decline in volumes, as the group prepared for DBX707 production and supply chain issues persisted.

There was a greater proportion of Specials (custom made cars) sold, which are higher margin. Together with cost cuts, meant underlying cash profits (EBITDA) rose 18% to £24.4m.

In 2022 Aston Martin continues to expect underlying cash profits to increase by 50% as it sells over 6,600 vehicles.

The group also announced that a former Ferrari CEO, Amedeo Felisa will take over as CEO.

Wholesale volumes fell across all geographical regions, with double digit declines in the Americas and Asia Pacific due to transportation delays. The number of vehicles sold in Europe and the UK fell by 5% and 3% respectively.

SUVs fell the most, from 746 to 421 while Sport and GT models rose by 22% and 20% respectively. The number of Specials sold rose from 1 to 19. The DBX made up 37% of cars sold, but that's expected to rise to over 50% of wholesales following the DBX707 launch in the second quarter.

The average selling price, excluding Specials, rose to £151,000 from £149,000. Total ASP, which includes Specials, rose from £151,000 to £181,000.

The group had a free cash outflow of £25m, up from a £24m inflow last year, reflecting increased investment. Net debt rose from £892m to £957m.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 21st July 2022