Aston Martin Stock Decline Continues as Analysts Downgrade Rating

HSBC has revised its rating for Aston Martin Lagonda Global Holdings PLC, lowering it from Buy to Hold and reducing the price target from 180 pence to 118 pence. This decision was made on Thursday, amidst growing concerns regarding the luxury carmaker’s production pace and ongoing execution problems that have resulted in significant rework on nearly finished vehicles.

Following the downgrade, Aston Martin’s shares fell by 1.2% in London, marking a nearly 30% decline over the last five trading sessions.

The analysts at HSBC pointed out the company’s persistent supply challenges, which have affected operations. They emphasized that for Aston Martin to meet its new guidance for the second half of 2024, it would need to sell almost double the number of cars compared to the first half of the year.

According to the analysts, “Given Q3 should be below current market expectations, it still seems Q4 needs to be a record for volumes.” While they view the transition to a more stable production rate positively, they acknowledge that it could impact cash flow.

HSBC also expressed concerns about Aston Martin’s weak free cash flow, raising alarms about the company’s balance sheet stability. The automaker reported available liquidity of £247 million at the end of the first half of 2024 and has since taken on an additional £135 million in debt. Despite this, HSBC’s forecasts suggest that liquidity might decrease to around or below £200 million by mid-2025, with net debt to EBITDA remaining above 4x, which could restrict funding opportunities.

In its investment analysis, HSBC recognizes the potential of Aston Martin’s refreshed product lineup, but anticipates earnings volatility and ongoing cash consumption in the meantime. The firm stated, “A stretched balance sheet somewhat compromises the group’s strategy – longer lead times and a fuller order book would be beneficial for exclusivity and pricing, but less helpful for cash flow.”

Although new product offerings and leadership under CEO Adrian Hallmark, combined with a potential for positive cash flow, could pique market interest, the broader context of profit warnings in the automobile sector and Aston Martin’s unique hurdles are expected to foster investor caution, according to analysts.

HSBC’s revised target price of 118 pence indicates a modest 7% upside from the current share price. The analysts concluded that the risk of Aston Martin failing to meet its 2025 targets—particularly concerning free cash flow—warrants the downgrade and adjustment of the price target.