Aston Martin - Plugging gaps - Initiation
All,
Please find our new analysis here.
Aston Martin’s new models have all been very well received. However, the company is still some distance from the 12k annual production levels by 2028 as promised a few years ago. At 10k production, AML would be free cash flow generative but would struggle to fund new car designs. As a result, despite raising £1.2bn in equity since Jan 2020, AML still needs cash. So even though the debt is covered, if estimate the marque to be worth £1.5bn, the sooner Geely buys it, the better for bondholders.
Investment Considerations:
- Despite a price in the high 90s, the high coupon is a deterrent to going short, and we have not taken a position in the AML SSNs yet. We see limited upside, but a poor H1 would see seven points of downside, with the bonds trading down to 91 (13%).
- Management guidance is for Q1 production to be flat, and we expect that will be met.
- We forecast the need for £100m in cash in H12026 to keep a comfortable liquidity buffer and the £52m equity raise announced and the >£70m F1 sale proceeds have pre-filled any imminent liquidity hole.
- We are not convinced that last year’s component shortages have ended. Component supply issues in H2 could be the catalyst for a short.
- The Q1 results are out on the 30th of April
Tariffs will sting, but we do not expect them to be a massive problem:
- We estimate the 25% tariffs on exports to the US will have a maximum impact on volumes of 5% on our original expectations. The free cash flow impact will be around £25m in 2025.
- The drag on sales will fade as new variants of the core models are launched in 2026 and the sticker shock wears off.
Liquidity will need a further boost in 2027
- Our modelling points to a £100m funding need in 2026, but we can see the company getting through to Free Cash Flow generation subsequently.
- If volumes recover faster than our forecast, that funding gap would be plugged.
- AML has demand that is less elastic than mainstream auto manufacturers, but it is not immune. It has also experienced supply chain issues in 2024, which, if repeated, will hurt cash flow.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055