Will Mercedes-Benz Deal Put Aston Martin's Shares Back In The fast lane?

Aston Martin’s share price has been stuck in the pits so far this year, but an increased partnership with Mercedes-Benz and further financing could see the stock return to the race.

It has been a difficult year for Aston Martin. Having been battered by missed sales targets and financing deals, shares in the U.S. are currently down 85% year-to-date (as of the Dec. 8 close). This has left it languishing below the $1 mark for most of the year.

So, what has gone wrong for Aston Martin’s share price this year? At its core, the issue lies with a slump in sales triggered by the coronavirus. Q3 saw James Bond’s favorite car manufacturer sell 982 units — a 34% drop compared to the same period last year. 

That said, Aston Martin’s share price has stepped on the gas, rising 60% since mid-October. Providing fuel for the previously stuttering stock is a new financing plan and Daimler's Mercedes Benz, which has upped its stake in the British motor company to 20%.

How will the deal affect Aston Martin's share price?

Aston Martin shares seem to be benefitting from the firm’s claim it will raise £1.3 billion (roughly $1.73 billion) in refinancing, including taking on new debt, and a further £125 million ($167 million) through a share issuance. It will also get access to hybrid and electric technology through its deal with Mercedes Benz.

“We already have a successful technology partnership in place with Aston Martin that has benefitted both companies. With this new expanded partnership we will be able to provide Aston Martin with access to new cutting-edge technologies and components,” Mercedes chief of product Wolf-Dieter Kurz said in a statement.

The deal is another sharp turn in a year that has left investors shaken rather than stirred. In January, billionaire Lawrence Stroll pumped £500 million ($669 million) into Aston Martin as part of a rescue package in exchange for 25% of its shares. Stroll promptly overhauled the senior management team, including replacing then-CEO Andy Palmer with Tobias Moers, former head of Mercedes's performance unit.

A year to forget for Aston Martin?

Aston Martin’s share price blues this year more than justified this drastic personnel shake-up, with a series of poor earnings results affecting the stock. Revenue in the third quarter came in at £124 million ($166 million), down from the £250 million ($334.5 million) posted in the same period the previous year. Adjusted losses came in at £29 million ($38.8 million), compared to the £43 million ($57.5 million) profit last year. 

The third quarter numbers come on top of punishing half-year results, which saw Aston Martin post a first-half operating loss of £159.3 million ($213.2 million) at the end of July, a significant jump on the loss of £38.9 million ($52 million) over the equivalent period last year.

Will Aston Martin’s share price get back into the fast lane?

Aston Martin's share price may benefit in the longer term from the raising of new debt, which is set to fund an ambitious new business plan. The plan targets £2 billion ($2.7 billion) in revenue and £500 million ($669 million) in adjusted EBITDA by 2024/25, along with a targeted annual capital expenditure of £250-£300 million ($334.5-$401 million) per annum between 2021 and 2025.

Aston Martin said that the new financing would strengthen its financial resilience and growth ambitions, leading to an extra £500 million ($669 million) in cash to spend.

"The plan will be underpinned by the new proposed financing that we are announcing today to strengthen the balance sheet, extend the debt maturity and improve liquidity," Stroll said in Q3 2020 results.

As Rupert Steiner writes on Barron's, however, this will be the luxury car manufacturer’s third equity issue this year. Aston Martin’s share price troubles suggest that the previous attempts failed to convince investors that the company is on the path to recovery. Shareholders will now need to see the firm deliver on its targets if the stock is to accelerate any further. 

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