Aston Martin shares fall on rights issue

Shares in Aston Martin Lagonda slumped by 16% on Monday to 405p after the company priced its rights issue at a substantial discount.

The luxury car manufacturer, favoured by James Bond, is launching a four for one rights issue to raise £575.8 million. As such, the company is issuing 559 million shares priced at a 78% discount to last Friday’s closing price.

Aston Martin rights issue to pay down debt

Half of the proceeds will be used to deleverage the company, which has £1.3 billion of debt, as well as invest in new car production. Existing investors Yew Tree Consortium and Mercedes Benz participated in the rights issue, which also brings in Saudi Arabian sovereign wealth fund PIF.

Aston Martin Lagonda told investors that since the Yew Tree Consortium invested in early 2020, the company had made “significant progress to fulfil its vision of becoming the world's most desirable ultra-luxury British performance brand.” It said that the company has also managed to reduce manufacturing costs by 20% per unit and seen a “significant increase in brand awareness, expanding the Group's reach, with 60.5% of customers in the 12 months leading up to June 2022 new to the brand.” The return of Aston Martin to the Formula 1 grid also boosted sales.

Aston Martin still reeling from Covid-19

However, management also acknowledged that the Covid-19 pandemic also had “a significant detrimental impact on the business in 2020, which led to a refinancing at the end of that year,” leaving the company with a “significant debt burden and associated interest costs,” which it wished to solve. The effects of the Ukraine war and supply chain issues have also weighed on the company.

At the half-year results in July, revenues rose by 9% to £541.7 million (from £498.8 million). However, total wholesale volumes fell by 8% to 2,676 units (from 2,901), while losses before tax tripled to £285.4 million from £90.7 million in 2021.

Nevertheless, trading is expected to pick up for the full-year, with free cash flow forecast to turn positive in the second-half. Management anticipate “significant growth on 2021,” with an estimated 8% increase in unit sales and a 50% improvement in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation), boosted by the Aston Martin Valkyrie and DBX707. Its first electric model is due for release in 2025.

However, potential flies in the ointment include the Ukraine war, Covid-19 lockdowns in China, raw material price hikes and logistics and supply chain issues. Charles Coldicott, auto sector analyst at Redburn, told the FT the company may also face relegation from the FTSE 250 later this year.

Shares in the car maker have fallen by 78% this year and currently trade at 434p. The rights issue should solve the debt burden, however even Aston Martin’s customers may not be immune from the cost of living crisis and rampant inflation.