Aston Martin Shares Dive After Another Profit Warning.
“Solid sales of a new SUV will be needed merely to meet mounting interest payments and avoid a balance sheet detonation,”
British luxury sports car and SUV maker Aston Martin’s shares dived over 13% Tuesday after it cut its profit forecast for 2019 for the third time.
Aston Martin shares had started to recover a bit in December, after unconfirmed reports Canadian billionaire and Formula 1 team owner Lawrence Stroll wanted to take control of the storied British brand and star of various James Bond spy movies.
On Tuesday, Aston Martin said 2019 profits would almost halve.
“From a trading perspective, 2019 has been a very disappointing year,” chief executive officer Andy Palmer said.
In early afternoon trading, Aston Martin shares were down 13.65% at 4.5 pounds, after falling 16% earlier.
In November, Aston Martin unveiled the DBX, its first SUV in its 106-year history. It is due to be launched in the Spring.
Analysts say Aston Martin might not survive if the DBX flops.
Aston Martin shares were floated on the stock market just over a year ago at 19 pounds a share. The company cut its production forecast for 2019 to between 6,200 and 6,500 vehicles from 7,100.
Investors are still clinging to the notion that the DBX will mark a turnaround in the company’s fortunes. It will have to be good too, because the competition includes the Bentley Bentayga, Rolls Royce Cullinan, Lamborghini Urus, and soon the Ferrari Purosangue.
1,800 DBX orders have been booked since the November launch
CEO Palmer said 2019 Aston Martin adjusted earnings before interest, tax, depreciation and amortization (EBITDA) will fall to between 130 and 140 million pounds ($170 to $185 million).
Reuters Breaking Views column agreed the DBX success was crucial.
“Solid sales of a new SUV will be needed merely to meet mounting interest payments and avoid a balance sheet detonation,” Breaking Views analyst Christopher Thompson said.
“Aston Martin’s equity value is now just $1.4 billion – some three-quarters below the company’s initial public offering in October 2018. That’s not far from net debt which is expected to climb to around $1.2 billion later this year once the company draws down an additional $100 million, lifting borrowing to over 7 times 2019 EBITDA,” Thompson said.
“The combination of falling sales and rising costs places the company’s near-term financial future in potential peril,” he said.
Bernstein Research analyst Max Warburton echoed the concern about Aston Martin’s future.
“The company’s financial predicament is grim and the timing, background and unclear explanations for the mess will raise market concerns even further,” Warburton said.
Warburton said that an analysts briefing earlier on Aston Martin’s problems had been told among other things the company’s sales had prompted bigger bonuses than expected, and that hurt the bottom line.
Warburton said in his view Aston Martin is suffering from selling many cars with huge discounts and unrealistic residual value assumptions.
Investment researcher Evercore ISI seemed less concerned.
“No (profit) guidance has been given for 2020 yet, however hopes are pinned on a successful DBX launch from Q2 this year. Given the strong order book it seems the new model has been well received, however the rate at which the new SUV cannibalises the existing models remains to be seen,” Evercore ISI analyst Arndt Ellinghorst said.
But Breaking Views’ Thompson wondered if a successful launch of the DBX would solve all the financial problems.
“Assume that the company shifts 5,000 of the vehicles at 150,000 pounds each. Applying a 15% margin would imply annualised EBITDA of 112 million pounds – barely more than an estimated 100 million pounds in interest costs (investment researcher) Jefferies reckons Palmer could face this year,” Thompson said.
Aston Martin confirmed it was in talks with investors for a potential equity investment, but gave no details.
Aston Martin is owned 33% by private equity firm Investindustrial, Kuwait Investor Group 28% and Daimler 4%.