The Aston Martin Lagonda (LSE: AML) share price fell sharply on Friday, after the firm launched its second shareholder cash call in six months.
The market’s disappointment is understandable. But I wonder if this could be a real turning point for the firm. If it is, then Aston Martin shares might be too cheap to ignore at current levels.
Good progress
The company says it’s making good progress selling old stock from its dealers to “regain price positioning and exclusivity”. What this means is that the firm wants availability to be more limited, so that it can build up its order book and reduce discounting.
This is part of a process to cut sports car production to balance supply and demand. It’s clear that the company was producing too many cars under its previous management.
I think executive chairman Lawrence Stroll is doing the right thing here. Genuine luxury products need limited supply. Dealers with too much stock don’t create the right image.
Aston’s super SUV is on track
The company says that production of its new DBX SUV has now started and is on schedule for media launch and first deliveries in July. The order book is described as “strong”.
Full-year wholesales (deliveries to dealers) are expected to be evenly split between sports cars and the DBX. Aston hasn’t provided any numbers, but this suggests to me that the SUV is expected to sell better than the firm’s sports cars during the remainder of this year.
If the DBX sells well, I think Aston Martin’s share price could really motor ahead. The delayed launch of the latest James Bond film in November should also help to boost the profile of the DBX.
Here’s the bad news
The financial summary provided by the firm on Friday revealed that the group’s net debt is now £883m, up from £614m at the end of March. This suggests to me that Aston Martin had no choice but to issue new shares. It’s clear the market knew this too – the shares were issued at 50p, a 20% discount to Thursday’s closing share price of 62.6p.
The placing raised £152m of fresh cash for the firm. Alongside this, Aston Martin has secured a £20m coronavirus loan from the government. It’s also withdrawn $68m on a previously-agreed loan, at an eye-watering interest rate of 12%.
Finally, management hope to secure another £50m of inventory financing, which provides credit for parts and stock before it’s sold.
If Aston Martin was a person, it would be maxing out every credit card and applying for payday loans. Things really are very bad, in my view.
Aston Martin share price: Buy or sell?
Billionaire Stroll is heavily invested in Aston Martin and the separate Aston Martin F1 team. My guess is that he has a plan and can afford to lose some money in the short term.
However, for ordinary shareholders, I think this stock should be avoided. The company has an uncomfortable level of debt and is still losing money. I see Aston Martin shares as a gamble, not an investment.
In my view, there’s still a good chance that this business will go bankrupt for the eighth time in its history.Â