“Race on Sunday, Sell on Monday” & My Ferrari V12 Hunt
March 21, 2023
Aston Martin’s £653m Equity Raise & Trading Update
“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.
Trading Update
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”):
- AML is on their 3rd CEO in 3 years
- AML’s sales have now declined 2 quarters in a row vs. same period YAG.
- For AML to achieve the 2022 guidance of 6,600 cars wholesaled, they will need to sell 50% more cars per month in the 2nd half of the year vs. AMLs first half results
- AML is claiming that supply chain and logistics disruptions negatively impacted wholesale volumes of the DBX in Q2. I suspect the huge increase in payables (over £700 mil. and 3x receivables) is more likely the culprit.
- Full year target for Valkyrie deliveries is 75-90. 38 have been “assembled” & 27 have been delivered in the 1st half. This likely includes the 10 Valkyries that were shipped but not delivered in Q4 2021. The current run rate is 56, well short of FY target. There is still no evidence that the Valkyrie road car runs properly.
- Without giving figures, AML indicated that free cash flow (FCF) and the cash balance were highly negatively impacted in Q2. I expect cash will have dropped from £404 mil. to under £300 mil. at the end of the first half
“This company will be cash-flow positive in 2023.” – Lawrence Stroll Feb 2022
- The above has now been pushed back to 2024
£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:
- AML’s share price has declined 96% since its listing in October 2018 and is 78% down from its 52 week high (as of Friday, July 15th).
- In the last 2 ¼ years, AML has burned through £687 mil.
- AMLs current gross debt load is £1.362 bil. on estimated annual revenue of £1 bil.
- The current product portfolio consists of 7 year old sports cars (Vantage/DBS), a SUV (the DBX) that was supposed to have saved the company but hasn’t, a hypercar (the Valkyrie Valkyrie Saga) that has had a problematic birth to say the least, and a ton of vaporware (Valhalla, etc) that may or may not get launched in the coming years.
- AML is currently in arbitration with Nebula over the severing of the contract on the Valkyrie & other mid engine cars. Should AML lose in arbitration, Nebula’s claims are in excess of £150 mil.
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:
- 3 million new shares at a price of 335p per share are being sold to PIF (Saudi’s Public Investment Fund) This gives PIF a 16.7% shareholding and 2 board seats (PIF: I would be open to discussion if you would like me to take one of the BoD seats). PIF will become AML’s 2nd largest shareholder. PIF is paying a bit under half of what Yew Tree/Stroll paid for their controlling shareholding in early 2020. PIF has also taken sizeable equity stakes in McLaren and Pagani in recent years.
Part 2 – right issue of approximately £575 million:
- PIF, Yew Tree (Stroll’s Consortium) and Mercedes-Benz AG have committed to investing approximately £257 mil. after the £78 mil. new equity placement with PIF. Of the £257 mil., Yew Tree/Stroll has committed to £105.3 mil. and Mercedes-Benz is on the hook for £56 mil. It looks like PIF will pick up the balance of £95.7 mil. but this is not clear, and it is not laid out in any of the documentation. My guess is this could still be under negotiation. Its also quite interesting that Mercedes has committed to put cash into AML for the 1st time in the Stroll era. I suspect this is actually more of a clever debt to equity conversion for Mercedes given AML’s £700+ mil. in payables. As one of AML’s main suppliers, their bills are likely to be a considerable part of that payables mountain.
- Rights Issue of up to £318 mil. with the remaining balance of AML’s shareholders. This is being underwritten by J.P. Morgan & Barclays. I am looking forward to seeing the underwriting fees in the 2022 annual report.
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%.
Atlas/Geely Offer
In early July, AML also received a £1.3 bil. offer from the Atlas Consortium. The offer consisted of £203 million cash followed by a £1.1 bil. underwritten rights issue in 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.
Summary
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.
Thoughts and comments? Please see the comments section below.
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July 2022
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Sidetrack question: anybody here has some knowledge about Valhalla and Vanquish? (they should use another name for that third model as the Vanquish was a front engined car..) How much is re-used from Valkyrie, who will built it etc? The concept of that three model mid engined cars line-up is good and even though the Valkyrie has been causing a lot of headaches I do think they could make solid money with the other two cars if they are simplified. It could be like McLaren using the same carbon tub for all their cars.. Problem is probably they will need to make them hybrid?
No news recently as per my understanding. The only thing that was mentioned is that Vanquish will not be the name (dont remember where I read it). I guess we have to wait and see a little bit longer. Maybe below article from early June can help whats going on.
https://www.whichcar.com.au/news/aston-martin-at-crossroads
I was surprised Felisa was not on the call. As a matter of fact, we have not heard from Felisa at all since he became CEO. When I first heard about the equity raise I thought, ah Felisa talked sense in Stroll, maybe he is the guy who can make Stroll listen to do the right things. But after hearing the proposed details of the deal and Felisa not being on the call at all makes me think Felisa is only CEO on paper and its is actually Stroll taking even more control.
It also surprised me the Atlas/Geely proposal was not mentioned at all during the call.
With the details of the PIF deal and Strolls reaction on the Atlas / Geely deal you can tell all he wants is a big payday before he gives up. With the PIF deal he lives to fight another day and there is still a chance to get that payday, although it will take him much longer. And yes he also keeps his F1 sponsorship deal and the seat for his son.
The way Stroll reacted to the Atlas/Geely proposal made it so clear he wanted to benefit from a deal personally that he might try to lure Atlas/Geely in making a new offer? If Stroll can get his payday and a multi year sponsorship agreement for his F1 team I bet he will take it.
Pardon my ignorance but can the board or major shareholders say enough is enough and force Stroll out? Rejecting a buy out offer from Geely with dark economic horizons upon us makes no sense at all. As does hiring impressive Ferrari talent without money to push through their ideas.
I welcome the addition of Mercedes-Benz as cash investing shareholder. Hopefully therein lies part of a much better future for this wonderful brand.
I don’t think you will be invited to join the board and if you are, you would either discover the secret sauce that ties it all together despite your skepticism or you’d have to resign post haste.
What interests me is that if you are right, the documents AML published may be considered at best to be not entirely comprehensive enough in disclosure terms.
But Stroll is putting his own money in too don’t forget so he’s a believer. And they are getting real third party money in. With banks underwriting the rights issue.
It will be interesting to see how it develops from here. A JV between Mercedes Benz and the Saudis perhaps?
You have no idea how much cash Stroll is putting in, his share of the Yewtree investment is undisclosed.
Yewtree are taking roughly £105m in this RI, and this could be split 5, 6 maybe even 10 ways.
1/10th share is £10m investment, 1/5th is £20m, pocket change for Stroll.
Why should any of us trust someone who:
-Blatantly lies to shareholders (Funding, Valkyrie deliveries, Moers sacking etc)
-Likely invests very little of his own cash in AML.L
-Destroys a perfectly good F1 team
-Sues the two gentlemen who run the most successful AML dealership in the world, selling a huge percentage of AM specials.
-Takes £21m from a public company to invest in his private F1 team to secure his son’s seat.
-Halves GT/Sports cars sales and trebles the debt since taking over the company.
-Makes ridiculous targets they company will never meet
The Emperor’s new clothes.
The Board comment was not even remotely serious.
please don’t forget that while Stroll may be putting money in AML, he’s also pulling money back out and sending it to his privately owned race team.
To me this is Aston trying to find something to keep them afloat until the next updates of their cars are released, with hope they’ll turn the fortunes of the company around.
Yet they’re relying upon Reichman…
His DB11 hasn’t sold enough. His second DBS hasn’t sold enough, the first was more Callum & Fisker’s work. His Vantage definitely hasn’t sold enough. His roadster struggled to sell. And when Aston Martin bet the farm on his DBX, it has left them wondering why their count of chickens hasn’t worked out.
Will Reichman’s 2023 designs finally be a hit? Maybe. But on previous form probably not.
The real question really is not if this investment by PIF et al will keep Aston afloat for 12-24 months, but who will save Aston after the next round of design disasters from Reichman that fail to sell in sufficient numbers?
As for Saudi, they’ve increased the amount of Russian oil they import so that they can sell more of their own product. Yes, they’re backing Putin and genocide in Ukraine. If Saudi didn’t have that oil we need we’d leave them in their sandpit…
My only criticism of this typically incisive and much valued blog is the author’s answer to his rhetorical question: how did the stock market react to AML’s big announcement? AML finished the week down 2.6%, i.e. 467.19p on Friday 08/07/22 and 459.30p on Friday 15/07/22.
This gives the impression that the announcement was made on the 8th July, whereas it actually occurred on the 15th. The price closed on the 14th at 371p. It opened next day at 362p and closed 26.9% higher at 459.3p in response to the RNS. On the following day the price rose another 32.5% to 608.8p, showing signs of a powerful short squeeze. After that reality began to set in and the price ended the week on 483.6p. It will be interesting to see where it goes during the run-up to the rights issue.
I take this opportunity of thanking the author for his previous analytical insights into AML and look forward to another karenable response to the forthcoming H1 results on 29th July.
“Summary
On a positive note, the £653 mil. Equity Raise does buy AML another 12-24 months and should get them through 2024. ”
Looking forward to your next post SSO! After looking at H1 results you probably tossed the above quote in the bin..