• Performance has been adversely affected by inflationary pressures, supply chain issues, and weakened demand in recent years. As a result, the company has realised negative FCF of more than £1.3bn since 2020Management expect to be FCF positive H2 24. Forecast for 2027/28: Revenue and adjusted EBITDA of £2.5bn and c.£800m, respectively
• Since 2020, the British car manufacturer has raised more than £2bn in equity financing to preserve liquidityIn 2020, amount raised totalled £813m. This included funds from the Yew Tree Consortium (£171m), an investment from Mercedes-Benz AG and Strategic Cooperation agreement (£125m) as well as £517m raised via ordinary equity issuancesDuring 2022, Aston Martin raised £654m, with the Saudi Arabian Public Investment Fund (PIF) becoming its second largest shareholder£216m was raised during 2023 through the issuance of ordinary shares
• Delivered 6,620 vehicles globally in FY 23, up 3% YoY. Americas is the largest contributor in terms of volume (31%), followed by EMEA ex. UK (30%), APAC (22%) and UK (17%)Sports (54%) — Encompass the Vantage, DBS and DB12, which realised 14% wholesale growth in FY 23SUVs (44%) — Include DBX models, with the DBX707 representing 71% of SUV wholesales in FY 23, up from 52% the previous year. SUVs wholesales dropped 9% YoY to 2,939 units. Average selling price (ASP) benefited from the change in mix to DBX707. Management claims the DBX707 holds ~20% market share in the ultra-luxury SUV marketSpecials (2%) — Include Valkyries, DBR22 and Valour models, are a great revenue and margin contributor, with various new models launched per year. Specials wholesale rose from 89 units in FY 22 to 151 units in FY 23, while the company also sells direct to consumer
• Network comprised of more than 160 dealers, with the top five accounting for 20% of FY 23 core wholesale volumes
• Wholesale ASP has increased from £162,000 in 2021 to £231,000 in 2023. Margins have also been supported by car customisation. Gross margin of 39.1% in FY 23, and 45.2% in Q4 23Management expects gross margin from core range vehicles to increase to over 40%, with a mid-40% gross margin set for 2027/28

• The recently signed partnership with Lucid and MBAG will play a key role in the company’s electrification strategy. Access to Lucid’s powertrain and battery technology will support the creation of a battery electric vehicle (BEV) platform. MBAG will provide certain electronic architecture, crucial for Aston Martin’s next generation ICE vehicles

Industry overview

• Operates in the ultra luxury sports (ULS) segment of the auto industry (ASP> £100,000), characterised by brand heritage, prestige, exclusivity, aesthetics, performance and quality
• As a relatively small sub-segment with a small number of players, ULS’ volume growth is driven by new product offerings catered to high net-worth individuals (HNWI)
• According to McKinsey, the luxury-vehicle market will outgrow other automotive segments until 2030 with EVs expected to account for 50%-60% by then

Source: Preliminary OM

• The customer base is comprised of HNWI who are less affected by macro conditions
• According to the 2024 Knight Frank Wealth Report, HNWIs and ultra-HNWIs are expected to reach 110 million in 2027 from 70 million in 2022, growing at a CAGR of more than 9%
• EV-preferring millennials, gen Z and females are growing as important target groups
• Despite weaker conditions in China this year, it is expected to be the fastest growing major economy for luxury and ultra luxury vehicles, with a CAGR of ~13% until 2031. Established markets (US, Japan, Germany) have historically supported the ULS market growth
• IHS forecasts SUVs to grow the fastest, rising ~37% to nearly 27,000 unit sales per year by 2030, from 19,700 in 2023

Source: Preliminary OM

• Regulations and consumer preferences drive adaptation of EVs:
• Regulations, technology advancement, and consumer preferences are forecast to increase overall battery-powered EV penetration rate to 46% by 2031, at a CAGR of 25%
• On 3 January 2024, the UK established the ‘zero emission vehicle mandate’ requiring 100% of new cars and vans sold in Great Britain to be zero emission by 2035

Risk factors

• Cash burn — The group has been FCF negative since FY 20. Outflows of £360m reported in FY 23, due to margins, high capital expenditure, supply-chain issues and interest payments. Fitch expects FCF generation to turn positive within the next two years

• Capex — During FY 23, the company spent almost £400m on capex, which is 24% of revenues. FY 24 capex is expected to be at around £350m, with the majority spend towards the shift to electrification
• Production delays — Chip shortages, supply-chain and tech integration issues have delayed production of models such as DB12. More recently, the group has postponed the production of its inaugural battery electric vehicle until 2026, deviating from its initial plan for a launch in 2025. This has translated into revenue impacts and big working capital swings. Receivables increased £86m in FY 23 resulting from the delivery timings of DB12 and Valour. Production delays pose the risk of a drop in customer satisfaction, potentially damaging the brand and reputation of the company
• EV Transition — Around £2bn is expected to be invested in the long-term transition to electrification over 2023-2027. In addition, further capex outlay is required to develop new models. Aston Martin entered into agreements with Lucid and MBAG for battery and powertrain technology
• Supplier concentration — Given the strategic importance of the electric transition, the reliance on a sole BEV supplier creates some concentration risk
• Cyclical end market — The cycle started its downward trend in 2019, when Aston Martin’s top-line dropped for two consecutive years. During FY 23, the persistent weak macroenvironment in China has contributed to a 20% wholesale drop in numbers of vehicles sold to APAC

Relative value

• Comparables based on rating (low single B) and security (senior secured notes). Additional weights have been applied towards McLaren
• We believe the closest comp is McLaren. We’ve excluded other OEM borrowers (e.g. Jaguar Land Rover) due to these having a stronger credit profile and being much larger
• The curve below suggests a STW of ~6% for the 5Y notes
• With the five-year Gilt yielding ~3.890%, this implies a yield of ~9.75% for the new notes. In addition, we expect there could be some sterling premium included in final pricing due to market illiquidity
• With the five-year UST yielding ~4.060%, this implies a yield of ~10.25% for the US new notes
• The 9fin bond screener can be found here. Prices are as of 11 March 2024

Link: Table

Link: Chart

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