Aston Martin shares back in the fast lane as analysts say ‘M&A fantasy may return’
Aston Martin shares raced ahead this morning as analysts backed steps to resolve ongoing debt issues following the announcement of a £1.15bn refinancing last week.
Shares topped London’s FTSE 250 index, rising nearly eight per cent by late morning.
In a note, analysts at Jefferies said Aston Martin was moving “in the right direction,” noting the refinancing had “stabilized liquidity” and bought the marque more time despite reasonably slow progress so far.
Bank of America said the sportscar maker was “turning the corner” and upped its rating to Buy.
“We think refinancing and capital raise concerns held back the share price, but these concerns are mitigated by the issuance of two bonds totalling £1.15bn, largely replacing the existing bonds but also increasing gross liquidity short-term.”
Alongside the completion of the bond refinancing, they added, recent credit rating upgrades could see the “M&A fantasy return.”
Aston Martin enjoyed a stellar share price rally last year and was invigorated by renewed backing from its stakeholders, which include the Chinese carmaker Geely and the Canadian billionaire Lawrence Stroll’s Yew Tree Consortium.
But confidence in the stock faltered in November, when it announced production issues in the roll-out of its new DB12 model.
Investors have long been concerned by the company’s significant debt pile, which it has struggled to shake off since its 2018 IPO. Chair Lawrence Stroll said in February the company was in talks with bankers over how to address the issues.
“The DB12 launch was delayed, the free cash flow turnaround has not materialized in H2 23 and hopes that Geely could increase its stake have seemingly disappeared,” Bank of America (BoA) analysts said.
However, they think the “operational trough” will be reached this quarter when the carmaker phases out old models and freshens up its line-up. “The problem has been always too low scale and too high leverage. The scale problem can be solved with the model launch offensive.”
Free cash flow is expected to turn positive in the third quarter before further rises in 2025, BoA added. “Aston Martin should then leave its history behind itself and re-rate simply on upcoming net debt reductions.”
Jefferies, which counts Aston Martin’s first stock analyst among its researchers, forecasts net debt will peak at around £850m at the end of 2024.
Other headwinds include potential governance issue. Lawrence Stroll’s executive chairman position has been described as “sub-optimal” for a plc and could make it difficult to attract future leadership to succceed CEO Amadeo Felisa, who is set to retire.