There is a clear reason why only one major car manufacturer exists in the £2.2 trillion London stock exchange. That’s because the UK is really poor at growing and managing a car company.
By way of contrast, US has Ford (F), GM (GM) and market-leading Tesla (NASDAQ:TSLA). Japanese car manufacturers (Nissan, Toyota, Honda) are known for their manufacturing efficiency and prowess, while Germany (Benz, BMW, Audi) has premium marques that many aspire to own. Upcoming brands from Korea and China are conquering new markets. Even France has Stellantis (NYSE:STLA). The UK? One heavily-diluted Aston Martin Lagonda (AML).
Out of the top five countries by GDP, only the UK has no multi-billion pound auto sector representation in the stock market. But the UK is still rolling out thousands of new cars off production lines every month – its just that these factories are no longer British-owned. In September 2022, 777 thousand new cars were shipped from the gate.
A worrying trend from the graph above is that the UK assembles 50 percent less cars over the past six years. Even foreign car manufacturers are retreating from the British shores. This could be due to the complex export rules emanating from the Brexit agreement.
Why is the country so bad at managing a car company? The UK used to have plenty of car brands, from the top-notch Rolls Royce to Mini to Jaguar. These brands are still in existence, but they are mostly foreign-owned now. In this regard, Aston Martin is no different.
The maker of James Bond’s DBX was IPO’ed by its owners a few years back in 2018 (prospectus here). Since that £4.3 billion listing, AML’s share price performance has been an utter disaster. Its post IPO price trend is akin to an overhyped SPAC listing that went only one way: Down.
Following the pandemic, AML’s losses swelled and in 2020 had to seek a £1.2 billion funding package from a variety of investors, including Mercedes. And a few months ago, AML required another funding round, a £650 million rights issue bought by a Saudi Investment Fund, to strengthen the balance sheet. Investors wonder: Is there no end to these funding rounds?
I doubt it. For one, Aston Martin is a luxury car brand that is standing alone. Yes Aston Martin cars are sleek and desirable, but making them is costly and unprofitable. Other luxury cars like Porsche and Ferrari (RACE) have deep-pocketed parent companies to support them. Not Aston. Hence the recurring equity injections.
Should you invest in Aston Martin in the long run?
The short answer is no. The fact that there are no other auto manufacturers in the LSE tells you all you need to know about AML’s long-term future. Culturally the country is just not suited to owning/operating a car brand. I have no idea why. Perhaps the country is better at selling cars. Look at Autotrader (AUTO). The online car listing website is worth 5x AML’s market cap (£5 billion vs £1 billion). Its chart is much better looking too.
If you have some spare cash, perhaps buying a head-turning Aston Martin sports car is better than buying Aston Martin’s shares. At least the car will leave you with a smile.
While Aston Martin’s stock is ill-suited for long-term investors, it does not mean there is no trade to be had occasionally.
Technically, AML’s downtrend is stabilising beneath the long-term moving average. It is forming a medium-term base. Interestingly, the stock just rebounded 50 percent from the psychological 100p level.
At this juncture, prices could retest the prior lows. Wait for this to initiate a buy trade. Alternatively, wait for prices to close above its 150-day moving average to confirm potential base breakout.
Aston Martin churns out appealing cars. But the company just cannot make a profit from these cars.
In the first half of 2022, for example, Aston’s GT/Sports car was already sold out into 2023 while DBX orders are up 40%. But AML’s net debt ballooned to £1.2 billion and its free cash flow is a negative £234 million (see below). In other words, every car AML sold is a financial loss.
Source: Aston Martin plc
In this regard, the company’s equity stake is precarious because AML continuously needs capital injections to operate. Debt refinancing is becoming more expensive as interest rate rises. And in the event of a deep recession in 2023, the company will possibly require another round of equity bailout.
- Expert guide – How to invest in a recession
Therefore, I presumed AML’s share price is ‘over-valued’ and I would only view the stock from a trader’s perspective.
Despite its fundamental problems, Aston Martin’s shares have rebounded over the past few months. Three reasons are behind this rebound:
- A new UK administration – which led to a loosening of the debt conditions and a rebound in Sterling. AML’s share bottomed out in late September.
- Oversold technicals – as prices have slumped by more than 60% in the preceding months.
- Equity injection – led by PIF. This stabilises AML’s balance sheet for the time being.
Taken together, AML’s share price rallied by more than 50% from 100p.
The City’s overall assessment of AML’s outlook is negative. There are more ‘Hold/Underperform/Sell’ recommendations than buy ones.
Analysts are sensitive to AML’s recurring funding needs and this makes them cautious about the car marker’s share outlook. The median price target for AML is 132p – a step below its current share price.
Source: Financial Times
The current Aston Martin (LON:AML) share price is 284p which is a change of 24.8 or 9.57% from the last closing price of 284 with 6,403,325 shares traded giving Aston Martin a market capitalisation of £2,075,020,253. The most recent daily high has been 290 and daily low 255. The Aston Martin share price 52 week high has been 307 and the 52 week low 85.66. Based on the most recent Aston Martin share price opening of 284, the current Aston Martin EPS (earnings per share) are -1.24 and the PE (price earnings ratio) is n/a.
Pricing data automatically updates every 15 minutes
To buy shares in Aston Martin (LON:AML), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Aston Martin:
- Decide if you want to buy Aston Martin shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
Buying one LON:AML share costs 284p. However, as well as the 284p cost of buying the shares you will also have to pay stamp duty, commission when you buy and sell shares and custody fees for holding your shares on your account. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
Pricing data automatically updates every 15 minutes