It’s been a crazy year for Aston Martin Lagonda (LSE: AML) shareholders. The Aston Martin share price has crashed from 175p to a low of 27.5p, before doubling to around 55p. What’s next?
I think that even the company’s biggest fans will admit it faces some problems at the moment. But I can see potential opportunities, too, with fresh funding and new management on board.
Today I want to take a fresh look at this situation. Are Aston Martin shares a bargain, or are shareholders heading for a wipeout?
New money, new management
There’s definitely been some good news for shareholders recently. After Canadian billionaire Lawrence Stroll took a 20% stake in January, he installed himself as executive chair.
Stroll contributed to a £500m fundraising that’s given the company some breathing room and is now taking steps to shake up Aston Martin’s management. Former boss Andy Palmer left the company on 25 May. Palmer will be replaced by Tobias Moers, who is currently chief executive of Mercedes-AMG.
If you’re not familiar, AMG produces high performance versions of Mercedes-Benz cars. AMG sales have quadrupled since Moers took charge in 2013.
In my view, Moers’ career experience makes him a good hire for Aston Martin. But I think there’s more to it than that.
Aston Martin already has a technical partnership with AMG owner Daimler AG. Meanwhile, Stroll’s Racing Point F1 team uses Mercedes-Benz engines. And from 2021, this team will become the official Aston Martin F1 works team.
Aston already has a history of using AMG engines. I suspect Aston Martin’s partnership with Mercedes will deepen. Mercedes might even buy the British company.
I understand that purists might want to Aston Martin succeed on its own. But technology sharing is the norm these days. Remember that Bugatti, Porsche, Lamborghini, and Bentley are all owned by Volkswagen Group.
I think investors should cheer Merc’s involvement with the British company. It could be good news for Aston’s share price.
Worries, I’ve got a few
Stroll controls a 20% equity stake in Aston Martin, so he faces some of the same risks as smaller shareholders. But Stroll is already a billionaire and this forms part of a bigger project for him, linked to his F1 team.
The reality for small shareholders is that Aston Martin’s finances remain in a pretty shaky condition. At the end of the first quarter, the company reported a net debt/EBITDA leverage ratio of 10.4 times. That’s very high – I usually prefer to see this ratio under 2.5 times.
Of course, earnings have been hit by the coronavirus lockdown. But Aston was already losing money and heavily indebted before this happened.
The Aston Martin share price: my verdict
I think that Aston Martin is in a much better position to succeed than it was six months ago. The launch of the new DBX SUV could boost sales and the business should get a marketing boost from the new James Bond movie later this year.
However, I think equity investors still face a lot of risk due to the group’s high debt levels.
Aston Martin has a great story. But I’d only buy these shares with money I could afford to lose.