2022 has provided the wrong sort of fast ride for shareholders in luxury car maker Aston Martin (LSE: AML). The company had already endured a bad several years. Nonetheless, the Aston Martin share price has tumbled another 66% so far this year.
That means I can now pick up three shares for roughly the price I would have paid for just one in January. Should !?
Business progress in 2022
In some ways, this has actually been a good year for Aston Martin. In the first nine months of the year, wholesale volumes fell 4%. That does not sound good and does not fit well with the firm’s short-term growth plans.
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Indeed, sales volumes were slightly below their level of 2018. But despite lower volumes, revenues in the first three quarters this year came in at £857m. That is a 16% increase on the same period last year.
Revenue was 22% higher than in 2018. So while current management has failed to lift sales volumes significantly, the company is at least generating significantly higher revenues. That reflects a change in the product mix as well as pricing increases. The fact that the firm can do this without losing substantial volume speaks to the pricing power of the brand. I see that as a key asset.
Will Aston Martin turn around?
Despite the revenue growth, I have mounting concerns about the business outlook. If those concerns turn out to be well-founded, that could hurt the Aston Martin share price in 2023 and beyond.
The company maintains it is on the path to achieving around 10,000 wholesale turnover and £2bn of revenue by 2024/25. But that means growing wholesale volumes by 62% and revenues by 83% compared to last year, in a short space of time. Given the business performance so far this year, I see those targets as ambitious, if not unrealistic.
Meanwhile, the firm continues to struggle under the weight of debt on its balance sheet. This is what really concerns me as a potential buyer of Aston Martin shares. The business ended last year with net debt of £892m. Things have got slightly better so far this year. But net debt was still an alarming £833m at the end of the third quarter.
The net debt reduction reflects a rights issue that heavily diluted shareholders. I see a risk of more dilution in future as Aston Martin tries to reduce its borrowing load at a time of rising interest rates.
Even if sales turn around and move into strong growth mode – and the evidence on that front is not compelling for me so far – the company’s financial situation could still be bad. For the full year, Aston Martin expects to have to pay £130m cash in interest costs. I see a risk that the business grows sales in coming years but does not make a profit due to its debt load.
I’m not buying
Based on that, I am not confident that the Aston Martin share price will recover in 2023.
In fact, I fear it could keep sinking, if sales disappoint, or the company decides to dilute shareholders further. I will not be buying the shares for my portfolio.
