The fortunes of Aston Martin Lagonda (LON: AML), after years of disappointments, may have finally turned. Its flotation in November 2018 on the London Stock Exchange, with shares set at £19, was a disaster. By May 2020, when chief executive Andy Palmer was sacked, the price was down 94%, and key investors, such as the Italian private equity group Investindustrial Advisors and the Kuwait-based investor group Adeem/Primewagon, were selling out over fears of falling sales and rising costs. Prospects were bleak.
But in January 2020, Lawrence Stroll, a Canadian billionaire businessman, and part-owner of the Racing Point F1 Team, secured a 16.7% stake in Aston Martin Lagonda, worth £182m, as part of a consortium of investors that includes JCB chairman Anthony Bamford, Hong Kong fashion investor Silas Chou and former Power Corp Canada boss André Desmarais.
Terms of the deal include a £318m cash injection through a rights issue and a rebranding of the Racing Point F1 Team as the Aston Martin F1 works team from 2021, to boost the brand’s prestige and raise its profile on the market.
What’s next for Aston Martin Lagonda?
Stroll’s stated aim, as executive chairman of the company, is to reclaim Aston Martin’s racing pedigree and to turn it into a “pre-eminent luxury goods brand globally”. His strategy features a major revamp of the firm’s product line ̶ all on a tighter budget and a reduced workforce. The Valkyrie, a 1160bhp hypercar now on sale for £3m, is to be followed in 2021 by the Valhalla, with a range of mid-engine supercars set for launch in 2022. However, the launch of the Lagonda is to be put back to 2025 and the electric RapidE project suspended.
Stroll has described his plans for Aston Martin Lagonda as “transformational”, but some analysts remain unimpressed. Last month, Goldman Sachs analysts cut Aston Martin Lagonda’s price target to 47 pence per share (from 50), with a recommendation to sell. Justifiably, perhaps: debt levels are high and the DBX model, a late entry to an already competitive SUV market, could just add to the pile.
The company had recorded a £29m pre-tax loss for the third quarter, down from a £43m profit in the same period last year, while revenues were down 49% annually from £244m to £124m.
The Mercedes-Benz move – positive signal?
However, on October 27, on the same day that Investindustrial exited, Mercedes-Benz announced it was raising its stake in Aston Martin Lagonda from 5% to 20% by 2023, no doubt negotiated by Aston Martin’s new CEO Tobias Moers, former head of Mercedes’ performance car division AMG.
Talk is now of an “expanded partnership” that will provide Aston Martin Lagonda with the latest powertrain and software technologies, such as next generation hybrid and electric drive systems. At the same time, Aston Martin Lagonda announced it had raised £125m in capital for its new business plan (selling at 50 pence per share) and restructured its debt. And its order book for the DBX is full. Shares in Aston Martin Lagonda jumped 15%, to 62.75p (as at 28/10/20) on the announcements, before falling back to 54.00 (30/10/20).
Stroll’s ambition for Aston Martin Lagonda is clear and his strategy does indeed look transformational. Perhaps Investindustrial and Primewagon may want back in, while shares are still cheap?