“Let me be crystal-clear, black-and-white: we do not need money.” – Lawrence Stroll Feb 2022
“The lady doth protest too much, methinks” – William Shakespeare 1602
I wasn’t planning on writing another article on Aston Martin (AML) until they released their 1st half results at the end of July. Last Friday’s announcement of the £653m Equity Raise and Trading Update put a fork in those plans as I’ve gotten quite a number of requests to comment on these latest developments. The following is intended to be a short analysis the equity raise and trading update with a more in-depth analysis coming when the full 1st half 2022 results are released on July 29th.
Before going into the £653m Equity Raise’s, just a few observations on Aston Martin’s Trading Update (per Stroll’s opening comments on the analyst call “the tremendous progress we have made in the last two years”):
“This company will be cash-flow positive in 2023.” – Lawrence Stroll Feb 2022
£653 mil. Equity Raise
In the Q1 earnings release, AML touted:
Solid liquidity with cash of £404m (December 2021: £419m); Net debt of £957m (December 2021: £892m)
And yet here we are, just 4 months later and Stroll has just announced that Aston Martin will be raising £653 mil. “to meaningfully de-leverage the balance sheet, strengthen and accelerate long-term growth”.
I’m really not sure how to square those two statements. As a bit of background on AML’s recent financial history:
Given the raging inferno that has been AML’s cash burn in the last couple of years, and despite Stroll’s bombastic protestations to the contrary, another cash raise looked inevitable if AML was to remain a going concern. In fact, the press release includes the statement:
The Capital Raise has been in development for some time
The £653 mil. Equity Raise is being done in 2 parts.
Part 1 – new £78 mil. equity placing:
Part 2 – right issue of approximately £575 million:
Of the £653 mil. to be raised, half is designated to pay down debt. This would bring Gross Debt to just over £1 bil. and save around £30 mil. in annual interest expenses. The balance will drop into cash which AML indicates should be in the range of £500 – 600 mil. when the process is completed. This indicates that AMLs current cash has dropped further from £404 mil. at the end of Q1 2022 to somewhere in the £200-300 mil. range. This would also be consistent with AML paying off a few of Mercedes’ larger invoices.
In terms of how did the stock market react to AML’s big announcement? AML shares finished the week down by 2.6%.
In early July, AML also received a £1.3 bil. offer from the Atlas Consortium The offere consisted of £203 million cash followed by a £1.1 bil. underwritten rights issue of which the Altlas/Geely group would have invested an additional £300 mil.
The AML Board rejected the offer stating that they believed it:
“markedly overestimated the Company’s new equity capital requirements, would have been heavily dilutive for existing shareholders”
This is quite an amazing statement. Given AML’s current situation and portfolio, I don’t think you could underestimate its capital requirements. This is also the first time I have ever heard AML being the least bit concerned on diluting existing shareholders. Over the past several years, the original AML shareholders have been diluted to the point that if they started out as 100 proof Absolut Vodka, they would now be the equivalent of Evian. I do suspect the rejection had more to do with its acceptance would have led to the end of the Stroll regime at AML. I doubt an Atlas/Geely led AML would have any interest in continuing the Aston Martin F1 sponsorship. Atlas would likely have much better uses for the £21 mil. fee AML is paying Stroll’s 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.
On a positive note, the £653 mil. Equity Raise does buy AML another 12-24 months and should get them through 2024. It gives the new CEO, Amadeo Felisa, at least a fighting chance to get AML out of intensive care. What it doesn’t do is fix AMLs underlying financial issues. That would require an additional £650 mil. with half going to paying down debt and the other half spent to bring the payables back into a much healthier £300-400 mil. range (as a reference, Ferrari’s payables were £670 mil. at year end 2021 on a business more than 3x the size). That £650 mil. additional plus the £653 mil. that AML is raising, just happens to match £1.3 bil. that Atlas/Geely was offering.
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