Aston Martin Slumps After ‘Disappointing’ Year of Profit Decline

(Bloomberg) --

The crisis at Aston Martin Lagonda Global Holdings deepened after the U.K. carmaker reported a steep profit decline in its first full year as a listed company, hammering its stock and bonds and increasing the urgency to attract fresh capital for a turnaround.

Adjusted earnings were about 130 million pounds ($171 million) to 140 million pounds last year, compared with the 247 million pounds reported for 2018, the company said. The shares fell as much as 16% to 436 pence, bringing the decline since the initial public offering in late 2018 to about 75%.

Aston has turned out to be a deeply unprofitable investment for shareholders, ending the year as the the second-worst performing stock on the FTSE 350 index. Ferrari NV‘s stock, by contrast, returned 70% last year, highlighting the diverging fortunes between the two super-car brands in a year that Aston Martin Chief Executive Officer Andy Palmer called “very disappointing.”

“It’s extraordinary to see how much the Aston Martin equity story has unravelled since the IPO,” Max Warburton, an analyst at Sanford C. Bernstein in London, wrote in a note titled “Shattered Dreams.” Warburton said the need to raise capital is “long overdue” and that partnering with another manufacturer is “probably desirable.”

“Whether such a partner is available and whether there will be substantial equity value upside from a deal remains unclear,” he wrote in the note.

Speaking in an interview, Palmer sought to focus on what he called the “one bright spot” at Aston: the order book for the new DBX sports-utility vehicle that’s turned into a make-or-break product for the company. The $189,000 DBX sits at the heart of plans to more than double annual output to 14,000 autos by 2023. Aston Martin said it got 1,800 orders for the model, meeting a condition it had to obtain a follow-on loan for $100 million.

Aston Martin said on Tuesday it will draw on the additional debt funding in the next four weeks, which may bring its total outstanding debt to over 1 billion pounds. Moreover, the funds may be issued in the form of unsecured debt, which in turn would further increase its borrowing costs to as high as 15% from 12%.

The company’s sterling bonds due in 2022 posted their biggest one-day drop since October following the earnings release, before retracing to trade little changed on the day by midday in London. The stock dropped as much as 84 pence to 436 pence.

The company, best known as the ride of choice for onscreen spy James Bond, has been battered by an industry downturn, uncertainty around Brexit and a lukewarm response to some models. Weaker-than-expected sales have forced the carmaker to scale back its sales volume targets. While Aston Martin made progress reducing inventory, it remains “a bit higher than we’d like,” the CEO said in an interview.

Aston Martin said it had to boost customer financing support and increase marketing, especially in the U.S., which undermined its cost-savings plan. The rally in the pound in December has also become an obstacle as it reduces the value of sales from abroad. The carmaker said higher sales of its entry-level Vantage model eroded average selling prices.

“The main question is not how many DBX have been ordered, but at what price and will it generate free cash or enough money to offset falling sales of Vantage/DB11,” said Sanjay Jha, an analyst at Panmure Gordon in an email.

The carmaker said it remains in talks with potential investors that were originally announced in December. That month, industry magazine Autocar reported that Canadian fashion billionaire Lawrence Stroll is planning a bid for the company.

--With assistance from Joe Easton, Thomas Mulier and Laura Benitez.

To contact the reporter on this story: Siddharth Philip in London at sphilip3@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Benedikt Kammel, Tara Patel

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