It’s been almost two months now since our last update on the never ending, but always entertaining, saga of Stroll’s Aston Martin. I thought now might be a good time to do a quick catch up as Aston Martin has just completed the £653m Equity Raise that was announced on July 15th (see: Aston Martin’s Equity Raise) A more in-depth look at Aston Martin will follow after they release their Q3 results in the coming 3-4 weeks. For this catch up, the intent is to focus on two areas: the Equity Raise and the Press’ evolving treatment of Aston Martin that it seems to have kicked off.
£653m Equity Raise
On September 29th, Stroll announced:
“I am delighted that we have successfully completed this transformational capital raise which significantly strengthens our financial position and enhances our pathway to becoming sustainably free cash flow positive. Along with Amedeo and the leadership team, we are fully focused on unlocking the significant shareholder value creation potential of this ultra-luxury British performance brand.
“I would like to thank our existing shareholders for their continued support in reaching this important milestone. The Yew Tree Consortium’s shareholding now stands at 19% following its full participation in the rights issue and additional investment through the capital raise. I would also like to thank Mercedes-Benz for their investment and the strong long-term partnership we have created.
In addition, I would like to thank The Public Investment Fund, one of the leading global investment funds, which has become a new anchor shareholder with a 18.7% stake in the Company. Finally, I would like to welcome Geely Holding, who have today announced that they have become a shareholder.”
Now there is a lot to unpack here. Starting with the equity raise, It’s actually the fourth raise in the last two and a half years starting with:
The four raises total up to of £1.46 billion. As a reference point on how these four raises have transformed the business in the eyes of the investment community, as of Oct 11, Aston Martin’s market cap was £650 million. This is slightly less than the £653 million AML just extracted from its long-suffering shareholders. In terms of Stroll’s comments about “significant shareholder value creation”, AML’s stock price has declined by 92% during Stroll’s tenure as Chairman. As a reference point on how Stroll has personally done on the AML investment, Yew Tree (the Stroll lead consortium) has invested approximately £425 million for its current 19% stake in AML. Yew Trees stake has a current market value of £123 million.
Coming out of this Equity Raise, AML now has two new major shareholders. PIF, which has just invested an estimated £174 million in AML for a 18.7% stake currently worth £122 million and, as a bit of surprise, Geely Holding with a 7.6% shareholding. Stroll did reference Geely at the very end of the September 29th announcement with all the glee and enthusiasm of a man who just found himself seated next to his ex-wife’s divorce lawyer on a long haul flight. Geely buying in was both a surprise and highly interesting as they had made a £1.3 bil. offer for AML back in July that Stroll slapped down rather unceremoniously. The offer consisted of £203 million cash followed by a £1.1 bil. underwritten rights issue of which Geely would have invested an additional £300 mil. The official statement from AML rejecting the offer stated:
“markedly overestimated the Company’s new equity capital requirements, would have been heavily dilutive for existing shareholders”
Given AML’s current situation and portfolio, I’m not sure it’s even possible to underestimate AMLs capital requirements. In fact, £1.3 bil. that Geely put on the table is much closer to what AML really needs to be able to pay down its current gross debt load of £1.362 bil. and payables of £843 mil. to a level that is much more manageable based on AML’s cash flow (see: Aston Martin’s 1st Half 2022 Results). This is also the first time I have ever heard AML being the least bit concerned on diluting existing shareholders considering they have done it multiple times in the last 2 ½ years. Geely clearly wants a seat at the table when either AML topples into an 8th bankruptcy or Stroll finally decides to cut his losses and run. I would expect Geely to raise its shareholding to over 10% and demand a Board seat in the not too distant future.
As for why Stroll rejected the original Geely offer in July, my guess is it has a lot to do with the myth Stroll has spun around the “works” Aston Martin F1 team. Geely would likely have much better uses for the £21 mil. fee AML is paying Stroll’s back of the grid privately owned racing team to paint their F1 car green and stick the Aston Martin name on it. As Stroll has also explicitly stated that Aston Martin Racing was able to sign “hundreds and hundreds of millions of dollars of sponsorship” off the back of the name change from Racing Point to Aston Martin Racing, this would put those sponsorships at risk.
So why if Geely is getting the same warm welcome that Mitch McConnell could expect at a Trump rally, is Mercedes-Benz continued to be embraced. I believe it comes down to a few key reasons:
For Mercedes, they are likely one of the few suppliers that is actually profiting from a relationship with AML/AMR. They are certainly getting paid on the racing side as an engine supplier, they would be first in line to get paid for supplying powertrains on the road car side of the business, and the majority of Mercedes’ shareholding in AML was gifted to them.
As for what AML will do with this latest £653 million “transformational” raise, back in July when it was first announced, AML stated:
On the first of these, AML is retiring $40.2 mil. in Senior Secured Notes and $143.8 mil. Second Lien Notes. When converted to GBP this equates to £185 mil. or 28% of the £653 mil. raised. It’s a far cry from half and only reduces Gross Debt from £1.36 bil. to around £1.18 bil. While this will reduce the semiannual interest payments slightly, its nowhere near the level of reduction needed to get to a longer term cash flow positive position based on current sales levels. The answer to why they are not using more of the cash to reduce debt is in the second of the statements, AML clearly needs more of the funds to provide a “liquidity cushion”. In the 1st half of 2022, Aston Martin proceeded to burn through £248 mil. of cash and blow up their payables by £122 mil. After paying off the £185 mil. in notes, this would leave £468 mil. of the £653 mil. just raised. Taking the £156 mil. in cash on hand at the end of June, add in the £468 mil. remaining of from the recent raise gives you a total of £624 mil. Looking at the 1st half run rates on cash and payables, the reason more debt wasn’t paid off is AML will likely need most, if not all, of the £624 mil. just to keep the lights on for the next 12-18 months. I’m not sure what type of equity raise comes after “transformational”, but I guess we will find out around this time next year.
Moving onto the second topic of the mainstream Press’ evolving treatment of Aston Martin, the tone has certainly changed dramatically to the more critical in the last several months. While Aston Martin has been a bit of a financial dumpster fire for several years now, it’s only recently that the mainstream British Press has been starting to take a more critical tone. On one level, it is understandable, Aston Martin is an iconic British Brand, and no one wants to be the one who pushed it over the edge. However, it’s a bit like the Prince Andrew situation, it was fairly well known for years that he is a rather thick, odious twit but out of respect for the monarchy, no one called him out as such until the evidence became so overwhelming it couldn’t be ignored. And that’s where we are now with Aston Martin.
Several recent headlines that you would not have seen a year ago:
The Telegraph: Aston Martin shares fall to record low after fundraising push falls flat
The Sunday Times: Italian takes charge with brakes on
Financial Times: Aston Martin faces £150mn lawsuit from dealers over Valkyrie hypercar
The last of these is probably the most interesting. The legal battle between Aston Martin and Nebula has actually been going on for over a year now. As a bit of background, it was Nebula that originally conceived the Valkyrie idea and brought it to AML (see: The Saga of the Valkyrie for more details). In June 2021, with no warning AML blew up the agreement with Nebula (my guess is to get out of having to pay royalties to Nebula on all mid engine AML cars for 10 years) and the dispute has been winding its way through the court system. To date Nebula has prevailed in all the court rulings and they are now in binding arbitration. Nebula’s claim is in the £150-250 mil. range, and from what I have heard from a number of industry insiders, they would appear to have a very strong case. The fact that its finally getting some attention in the British Press would seem to indicate that AML is no longer going to be coddled.
Back in early May, I summarized AML’s position as teetering on the brink of disaster. At this point, they look to have bought themselves another year to turn things around. A good indicator on how this will go should appear shortly when AML releases their Q 3 results. However perhaps it is the analysts at Redburn who summed it up the best:
“Our fundamental view of the company remains unchanged whereby we remain concerned over its ability to sustainably generate” free cash flow
And to think it was only a year ago that Stroll declared in an interview with CNBC:
“The risks are behind us. We have tremendous growth in front of us and a Formula 1 team to market it.”
Note: I do not and have never owned any AML shares.
Thoughts and comments? Please see the comments section below.
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Some of your comments must burn those at Aston Martin! I was personally rolling on the floor…
“with all the glee and enthusiasm of a man who just found himself seated next to his ex-wife’s divorce lawyer on a long haul flight.”
For Stroll to have turned down Geely only to find them finding a way in to his party I couldn’t come up with a better description. Geely, as you state, should have a seat on the board. With how they’ve transformed Lotus and made a success of Volvo, it would be good for Aston Martin to have at least one person with a bit of competency.
I’d forgotten about the smaller cash injections that Aston have had. Those investors would have made more money letting a bank look their cash instead! Shocking. That even stuffing their mattress with notes would have been better. What surprised me was the banks underwriting the rights issues. Aston is going from one disaster under Stroll to another.
Yet, all Stroll seems to see is Aston as a “Brand”. He can’t see product, can’t see that he needs to improve the product. They seem leaderless, or clueless, or both.
This is where I’ve got to compare Aston to Lotus. Aston are failing with their designs, but Lotus with the Emira have a different problem. They can’t make enough of them! That’s the difference good design makes.
Harry’s Garage released a video of Harry freely walking around the Lotus factory to see his Emira being built. That he was let loose to do as he pleased shows the confidence Lotus have not only in their product, but their factory too. Worth noting, Lotus is owned by Geely. Do they have problems? Yes, like everybody else they’ve been affected by the pandemice and Britian’s unique form of self-harm called “Brexit”.
But with good design Lotus are confident and making progress like they’ve never had since the Elise.
Aston? Not so much. They need the cash generated to do the 2023 updates to their cars, but their cars have one fatal flaw: Marek Reichman designed them. And the updates have one fatal flaw too: Marek Reichman is designing them.
Anybody who’s read my comments know how long I’ve said to save Aston Martin you need to sack Marek Reichman. This rights issue does nothing to save Aston. Stroll will bleat on about brand, and Reichman will try and convince you his designs are good. Customers will continue to buy something else instead.
Few years ago when I said they needed a new and competent designer there was time to save Aston Martin. That time ran out, this cash injection is life support, not life saving.
Thank you for very interesting analysis!
Regarding F1 sponsorship – there are details of it deep in the Prospectus, on page 221 of 244. Basically, F1 team has branding rights till end of 2031, no matter what happens to sponsorship agreement. Very clever Mr. Stroll.
Quotes from Prospectus:
a) “… AML Limited granted AMRGP the worldwide, royalty-free right to use the “Aston Martin” name, logo and branding (the AML Branding) in respect of Formula 1™ participation for an initial 10-year term starting on 1 January 2021, …”;
b) “If the Sponsorship Arrangements are not renewed or are otherwise terminated before 31 December 2030, AMRGP will continue to use the AML Branding in respect of its Formula 1™ participation for the remaining initial term of the Branding Arrangements (ending on 31 December 2030).”
In 2031 Lance will be ready to finish his 15 year F1 career. Perfect timing.
AM are building a huge new F1 facility at Silverstone which is pretty impressive . So how about an outside bet , Andretti Motorsport get involved buy into the F1 team to release some monies back to the mothership/wreck? 30 to 1 .
Like John already said: F1 team is privately owned by Stroll. No money will go back to AML.
Andretti keeps focussing on starting an 11th team on the grid. F1 does not want this, yet, but Andretti keeps saying that they are full steam ahead to do this.. and thus not buying an other F1 team..
Very interesting, thanks. The situation with MB is more complex because of the supply agreement for electrification support and product. They have successfully brushed this under the table, especially that the cost is based on share price.
The second wildcard is Mr Felisa. He’s never referenced by Stroll, even when you would expect it to be the CEO making the announcement. But he must have extracted guarantees of authority and investment to make the necessary changes or his reputation will be on the line. At the AGM the only word he was allowed to say was “hello”. I’m still hopeful that this funding plus Felisa will make the 2023 cars more competitive. Then they just need to sell them. My experience with Aston Martin Works, the factory-owned dealer, is that they are more interested in fancy videos than in converting customers from rival brands. Loving my new Porsche, hopeful about my AML penny shares.
Aston showroom is 200 meters away from my office and I dopped by recently. Sales guy told me they never had a better quarter and he’s never been busier. For the record I live and work in Asia. But it matters little if they cannot produce proper cash flow. They moved cash positive year from 23 to 24 but thats also debatable. My bet is 2025 cause then they will have the whole lineup facelifted including DBX plus first PHEV.
Unlike John, I think that Aston’s current vehicle designs (at least on the exterior) are rather nice. It is the interiors, particularly the dash and center console that I despise, but perhaps this is somewhat dictated by Aston’s use of MB infotainment and componentry. I am no fan of MB interiors either.
I had a chance to get up close to a DBX 707 in July at the annual British show in St Moritz. Despite being prominently displayed outside of Suvretta House, with plenty of people in attendance and in the general area, no one was paying any attention to the DBX…