Aston Martin (LSE:AML) shares compounded heavy losses on Thursday as rumours spread that the car manufacturer was looking to raise more capital. The stock fell nearly 10% in early morning trading.
So, what’s behind the fall and is Aston Martin right for my portfolio?
What’s behind today’s losses?
Aston Martin is allegedly looking to raise more capital to help fund its operations. According to Autocar, Aston is wanting to significantly strengthen its financial position as it ramps up investment for its next-generation platforms and future electrification strategy.
Autocar reported on Wednesday that the fundraising could involving bringing a significant new investor onboard. Aston Martin are open to offering a position on the company’s board as an inducement. The magazine suggested the investment could be upwards of £200m.
It also claimed that there are two leading contenders for the funding. The first being a Saudi Arabian investment fund. Businessman and executive chairman Lawrence Stroll allegedly has close ties with the country through his F1 team’s deal with Saudi Aramco.
The other investor could be a fund based in the US.
Aston Martin’s funding requirements
Aston Martin shares also fell on Wednesday. The stock is actually down 20% this week. And that compounds losses over the course of the year. It’s down 77% over 12 months — and 96% since its listing!
Stroll has ambitious plans for the iconic car brand. Stroll wants to increase production to 10,000 cars per year by 2024/25, up from 6,600 in 2021. In turn, the chairman wants to achieve £2bn in revenues and £500m in adjusted EBITDA by 2024/25.
But achieving this, and electrifying its range, requires funding.
Aston Martin has £1.2bn of outstanding bonds, bank drafts and loans. This means the company is unlikely to be able to take on more debt.
Could Aston Martin shares soar?
Well, if Stroll’s plans are actualised, the car manufacturer’s shares would soar. But it’s going to be difficult to get Aston back in the black.
Revenue for 2021 was just over £1bn. Stroll’s plan to hit £2bn in revenue by 2024/2025 gives the company just four years to double the firm’s income.
In the most recent quarter, revenue grew 4%. Clearly, the growth rate is going to have to increase significantly. That said, it’s worth noting that growth has been constricted by a dearth of semiconductors in the last year. However, on Thursday, UK car manufacturing posted its first uplift in 10 months.
I’m actually pretty positive on Aston Martin’s growth plans. I definitely think the company is moving in the right direction. Its SUV is selling well and it’s also focusing on improving margins.
Aston appears to be taking a leaf out of Ferrari‘s books — former boss Amedeo Felisa was recently appointed CEO. The Italian brand has some of the best margins in the business.
I already own Aston Martin stock, but I’d buy more at today’s price. Although I see this as a long-term investment. I’m not expecting a turnaround any time soon.