The Aston Martin Lagonda (LSE: AML) flotation back in 2018 was a disaster. We’re looking at a 95% loss since opening day. But on Friday morning, the Aston Martin share price leapt by 25%.
So what’s happening? And could this possibly mark the start of a long-awaited recovery for the luxury car maker? It’s all down to a major investment in the company by Saudi Arabia, in tandem with a new equity issue.
At the end of the first quarter, Aston Martin was sitting on net debt of £967m. It was still losing money, with a rising adjusted operating loss. And the cash flow situation was looking a bit tight, with capital expenditure needed for the company’s product development pipeline.
But with the Saudi Public Investment Fund (PIF) stepping in, things could be about to change. PIF will invest as part of a new £653m refinancing plan, which will make it the second largest Aston Martin shareholder.
In addition, Lawrence Stroll’s Yew Tree Consortium and Mercedes-Benz are among those taking part in a new rights issue.
This brings an end to an alternative £1.3bn approach, from China’s Geely and Italian investor Investindustrial, which would have handed control of the company over to the pair.
Paying down debt
About half the new cash will be used to pay down debt. And that has got to be a good thing. The company reckons this will help drive its ambition of achieving “positive free cash flow generation from 2024.”
Is this really the turnaround that shareholders have been hoping for? And does it suggest the Aston Martin share price now represents a buy? A couple of things make me think it might.
The PIF, plus other investors getting in at today’s share price, might well be thinking they’ve got in at the bottom. I can’t be alone in wondering just how low the Aston Martin share price might otherwise have gone.
Rival interests
The fact that two rival sets of investors were after the company suggests that big institutional investors see Aston Martin as cheap.
On the other hand, prestige, market dominance and other factors might play a part. For sure, the amount it’s investing is relatively small for the Saudi PIF, which has around half a trillion dollars at its disposal.
And Chinese car maker Geely might have considered it worth paying a premium to acquire such an iconic brand.
I’ve followed the company since its IPO, and I’ve been scathing over its early management and its pie-in-the-sky ambitions.
The right track?
But since Lawrence Stroll turned up as a white knight to try to get Aston Martin back on track, I think it’s been steering a more realistic course. So might this be the point the recovery really starts to kick in?
I won’t buy the shares right now. I just don’t like the risk of investing in unprofitable companies that don’t offer much in the way of safety. What I want is proven profits, cash flow and dividends.
But a younger me, from back when I took more risks with growth shares, might well have been buying a few shares today!
