HSBC Downgrades Aston Martin Stock
HSBC has downgraded Aston Martin Lagonda Global Holdings PLC (LON:AML) to a Hold rating from Buy and cut the price target to 118 pence from 180 pence.
Share Performance
The luxury car manufacturer’s shares dropped 1.2% in London and have lost nearly 30% over the last five trading sessions.
Reasons for Downgrade
The downgrade comes amid growing concerns about:
– Aston Martin’s forced transition to a smoother production rate.
– Execution issues leading to high levels of rework on nearly completed vehicles.
HSBC analysts noted ongoing supply issues affecting the company, identifying that achieving new guidance for the second half of 2024 would require selling nearly twice the number of cars compared to the first half.
Analyst Insights
Analysts expressed that:
“Given Q3 should be below current market expectations, it seems Q4 needs to be a record for volumes.”
They welcomed a transition to a smoother volume run-rate, but warned this could strain cash flow.
Financial Concerns
HSBC highlighted Aston Martin’s weak free cash flow (FCF) and expressed concerns about the company’s balance sheet strength. As of the first half of 2024, Aston Martin had £247 million in liquidity but has also raised an additional £135 million in debt.
Projections suggest liquidity could decline to £200 million by the first half of 2025, while net debt to EBITDA is expected to exceed 4x.
Future Outlook
Despite acknowledging the potential of Aston Martin’s refreshed lineup and new leadership under CEO Adrian Hallmark, analysts forecast earnings volatility and continued cash burn.
HSBC’s new target price of 118p suggests only a 7% upside from the current share price. The risks of missing 2025 targets, particularly regarding FCF, justify the downgrade and adjusted price target.
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