One London stock analyst has described Aston Martin’s shocking drop in its share price as “nothing short of a disaster”. Since its Initial Public Offering (IPO) in October 2018 when it floated on the stock market at £12.98 per share, the share price has fallen to £4.98, as the company announced a loss for the past financial year of close to £80m. This compares with a £21m profit for the preceeding year.
Its market value has fallen since the IPO from a valuation of £4.3 billion to £1.1 billion. Michael Hewson from CMC Markets said in The Guardian: “The first half following the pre-IPO optimism of late last year, has become a distant memory, with investors undergoing a significant reality check,” Hewson said. “The share price has lost over 75% of its IPO valuation, and while we knew that this week’s results would be bad, the loss of confidence in the management of the business from investors has been startling.”
Against this backdrop Aston Martin’s CEO Dr. Andy Palmer (right) said the company would “cut its wholesale guidance”. Which means it will formally advise the London Stock Exchange that the business is going south, and it will slow production, and its sales forecasts will be revised down.
The company also admitted that it’s finding it hard to shift its low volume, high margin special edition models. This is a vital sales segment for luxury carmakers, and these cars are not easily saleable once confidence falls in the future of the company.
Andy Palmer put on a brave face, saying that the new DBX SUV is filling orders fast, and is “selling like hot cakes.” He also said that as a precaution the company would ensure it would not over-produce – which is the wisest thing Palmer could do.
In the first six months of this year sales to British dealers dropped 17%, and sales to Europe and the Middle East dropped 19%. Aston Martin has slashed its sales forecast for 2020 from 7300 cars, to 6500.
Andy Palmer had been cast as the saviour of the company, lifting it from near bankruptcy, to a position where it could float on the stock exchange, however he is another in a long line of ‘saviours’ who has hit rocky ground.
Automotive experts point to a number of (in retrospect) ill-timed decisions. The most important was the massive investment in designing and building a brand-new, clean sheet of paper V12 engine for its top-line models.
Whilst the company could not continue with its existing V12 due to lack of compliance, the investment in the new 5.2L V12 is a massive ‘sunk cost’, which can only be balanced by very healthy sales of the models which are powered by this engine.
Clearly, this strategy has failed. The appeal of Aston Martin’s models which use the Mercedes-Benz AMG V8 remain strong, but the V12 models’ sales expectation are very wobbly.
Whilst looking at investments, Palmer announced prior to the IPO that Aston Martin would invest heavily in new platforms, designs and expansion of the model range – which includes massive investment in its DBX SUV, and the new St. Athens factory which will build it. Also piling on the cost pressures is the fact that to reach DBX production targets, headcount at St. Athens will double to 600.
Investing in the survival and continuation of the company is all very well, but when sales dive, confidence in the company ebbs away, and all of a sudden it’s not looking like Aston Martin will enjoy a rosy future.
Analysts point out that in the last six months not only have Aston Martin's sales slumped, but its 'cost of sales' (meaning marketing and advertising expenditure) has risen sharply, which has the effect of dramatically shrinking profit margins.
All of which makes me very surprised at a report in mid-December in AUTOCAR magazine, that the billionaire owner of Racing Point F1 (formerly Force India), Lawrence Stroll is lining up a consortium to take control of Aston Martin.
Lawrence, who is reputedly worth two billion pounds and is the father of Racing Point F1 driver, Lance Stroll, is well-known for his business acumen in rebuilding struggling companies.
Why, at this point, Stroll would even contemplate taking control of Aston Martin is beyond me. If Lawrence Stroll is so smart why would you take a controlling interest in a company in such dire straits?
If Stroll does make a formal offer to buy Aston Martin, Andy Palmer will be forced by Stock Exchange regulations to confirm if a formal offer has been made.
Mr. Palmer can then join other automotive corporate luminaries whose grand dreams and bold actions have brought them undone by poor trading conditions.
A week or so ago, I was writing about Aston Martin’s former Head of Marketing, Simon Sproule (right), and his decision to quit Aston Martin to join FCA (Fiat Chrysler Automobiles), and postulated then that this very savvy executive has impeccable timing about his decision to ‘jump ship’ and take up a new challenge.
To me, his decision to move on underscores his prescient vision of Aston Martin’s hazy future, and his confidence (or lack of) that the Company can survive.
However, another rumour doing the rounds on the London Stock Exchange is that Chinese behemoth Geely (owner of Volvo and Lotus) may be interested in buying Aston Martin.
That's the reason there was a slight lift in the share price this week. Investor commentator, The Motley Fool, even thinks this could be enough to prompt investors to 'buy' shares!
With two possible life-rings in the air, this could be the only hope Aston Martin has to survive - again!