Aston Martin Losses Mount But Investors Still Hope For DBX Rescue

Of all the James Bond movies you’ve seen starring a British Aston Martin luxury sports car were you ever inspired to go out and buy one? Or perhaps know someone who did?

Almost certainly not, given a starting price of over 130,000 pounds ($150,000) for the cheapest Aston, the Vantage. But Aston Martin CEO Andy Palmer, after presenting another set of poor financial results, told the Financial Times he expects sales to be helped by the new James Bond film, which is set for release in the first half of next year and stars 4 Aston Martin models.

But luckily for Aston Martin shareholders, by then its new make-or-break SUV, the DBX, will have been launched, and hopefully will be notching up hugely profitable sales. The DBX will be unveiled in Beijing on November 20, and the choice of China for the maximum publicity launch site tells you all about where its biggest market will be.

Palmer had announced that Aston Martin made a loss in the 3^rd quarter of 13.5 million pounds ($17.3 million) compared with a profit of 3.1 million pounds ($4 million) in the same period last year. In the second quarter it made a loss of 79 million pounds ($101 million). For the first 9 months of 2019 pre-tax losses hit 92.3 million pounds ($118 million) compared with a 23.9 million pound ($30.6 million) profit in the same period last year.

Aston Martin has tried to cut costs and reduced investment this year to 300 million pounds ($384 million) from 345 million last year ($442 million).

Investment researcher Jefferies said the future of Aston Martin is all down to the DBX.

“Unless core car profitability turns around and DBX delivers volume and profitability well above expectations, we struggle to see (free cash flow) turning positive before 2021 and how Aston Martin’s balance sheet can de-leverage organically,” Jefferies analyst Philippe Houchois said.

A couple of months ago S&P Global Ratings and Moody’s Investors Service cut expectations on Aston Martin, after it borrowed $150 million at the hugely expensive 12%, while adding another $100 million of borrowing to tide the company over as it launches the DBX.

The DBX will have to be some vehicle to compete in the high end of the SUV market which already includes the Bentley Bentayga, Rolls Royce Cullinan, Lamborghini Urus, and soon the Ferrari Purosangue. Prices for the DBX are expected to start at $180,000.

At the time, the Financial Times Lombard column said the high interest rates on the loans signal a company teetering on the edge.

“If the DBX sells well, then earnings will motor. But investors should brace themselves. If (using an analogy from a James Bond film starring a mythical Aston Martin) the parachute fails to open fully, Aston Martin will crash to the bottom of the ravine,” Lombard said.

S&P Global said Aston Martin has now reached the limit for debt that it could reasonably be expected to service.

Bernstein Research analyst Max Warburton agreed that everything depends on the DBX, which will be simultaneously launched in Los Angeles.

“All eyes now turn to 2020 and the DBX. The choice of launch location says it all – this car absolutely has to work in China and has the potential to transform Aston’s fortunes. Beijing has 122,100 millionaires – imagine if just a few percent of them buy a DBX. Beyond China, LA has 173,300 millionaires and London has 357,200, at least until December 12 (the day of Britain’s general election). The opportunity is big – competitor SUVs continue to sell very well and the DBX, to this analyst’s eyes looks great. We model 2,000 DBX in 2020 and 4,000 in 2021,” Warburton said.

“Aston Martin looks set to survive 2019 and should see improved fortunes in 2020 – if DBX works, it should power a degree of share price recovery. But fundamentally, Aston Martin has an unsustainable capital structure with an unrealistic level of debt. A capital raise is needed – and would be rewarded with a repricing of the equity. It would be responsible of Aston Martin’s major shareholders to support such a move,” Warburton said.

Aston Martin shares were floated at 19 pounds in October last year and are currently quoted at about 4.5 pounds. There was a profit warning in July, and it cut its production forecast for 2019 to between 6,200 and 6,500 vehicles from 7,100.

Private equity firm Investindustrial owns 34% of Aston Martin, while Mercedes-Benz parent Daimler has a 4% stake. Mercedes makes some Aston Martin engines.