Aston Martin - Bang for your buck.
All,
Please find our unchanged analysis here.
The announcement by Aston Martin (AML) of a £575m rights issue last week has overshadowed the H122 results published today. We had questioned the timing of the capital raise, and the H1 numbers support our view on liquidity. We do not believe that AML will emerge from its liquidity valley as quickly as management thinks, so we note the money being raised and that it is looking more likely to be used where AML can make the biggest difference.
Working capital outflows will unwind… eventually:
H1 working capital was bloated by supply chain issues with AML having >350 DBX707s awaiting parts for completion. As a result of these shortages, the H1 WC outflow was £75m worse than our model. We are sceptical about AML’s expectation that the supply chain issues will disappear over H2. However, completion of the capital raise will shield management from the distraction of relying on this reversal, something over which it has little control. One interesting point was that we had expected £50m in FY22 outflows from customer deposits as the Valkyrie cars began to be delivered, but H1 saw an inflow of £10m. We will keep tabs on how this develops in the coming quarters.
AML and Mercedes Benz (MB) seem to be on better terms:
After comments from Lawrence Stroll and the appointment of Ferrari executives with electrification experience, we had concerns that AML might want to go it alone in developing an electric power unit. Today, AML announced that MB had agreed to extend Phase 2 of its technology transfer agreement by a year. This has helped ease our fears a little. The agreement will give AML access to MBs electric power architecture. New CEO, Amedeo Felisa (ex-Ferrari) was also much warmer about working with MB than AML Chairman Lawrence Stroll. We will continue to watch this space; we prefer that cash be used on cars, not electric engine development. A stronger AML benefits MB even if negotiations on technology transfer will be more balanced.
No changes to Sports car launch schedule:
The new model roll-out schedule has not changed so far. The successful launch of the all-new sports car models is critical for AML and there had been some press speculation about the roll-out being pushed back. The presentation maintains the schedule of three sports cars available in 2023/2024 (the Valhalla from 2024). The Rights Issue prospectus will have to persuade investors that there are no looming issues in getting the models to market but so far, so good. Again being able to focus the cash raised on car development will help AML.
Investment Considerations:
- Our investment thesis is unchanged, we prefer the SSNs over the 2nd Lien notes due to the size of the former. The lack of any surprises in the release gives us more confidence than ever that the Rights Issue will be successful. Earning what should be a steady 10% YTM in cash, is an attractive proposition in these volatile markets. We see no rush but would likely put a position on before publication of the rights prospectus in Mid-August.
I look forward to discussing this with you all.
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055