Aston Martin Lagonda Global Holdings PLC AML LN
January 27, 2021 - 5:17pm EST by
HTC2012
2021 2022
Price: 1,846.00 EPS -1.69 -0.97
Shares Out. (in M): 133 P/E NM NM
Market Cap (in $M): 3,367 P/FCF NM NM
Net Debt (in $M): 1,060 EBIT -50 14
TEV ($): 4,427 TEV/EBIT NM 207

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Description

The shares of iconic luxury brand Aston Martin should double over the next 12 months as new Executive Chairman Lawrence Stroll and new CEO Tobias Moers meet or exceed their conservative financial targets in 2021.  If management hits their out-year targets, the shares will trade at 1.5x sales and 6x EBITDA vs. Ferrari at 7.5x and 20x 2022 sales and EBITDA, respectively.  We are not suggesting that Aston Martin will garner the same multiple as Ferrari but given that the shares are down >85% from peak (the IPO price), we believe the sentiment reversal that began in late October has a long road ahead. In fact, we believe sentiment could overshoot as our proprietary Aston Martin dealer checks suggest 2021 financial estimates are completely de-risked.  Lastly, given the current relevance of moderate short interest even in the UK, it’s worth mentioning that >8.3% of shares are short according to Markit Securities. (Numbers in the finanical information section are largely in USD due to VIC's text boxes) 

Why the Opportunity Exists

Through either incompetence or reasons more nefarious, prior Aston Martin management along with their syndicate of investment bankers convinced investors in its October 2018 IPO that demand for Aston Martin sportscars was ~6k units annually versus historical demand of 3-4k units. Dealerships were stuffed with excessive inventory (duh!) that had nowhere to go and as a result, pricing pressure, write-downs, ballooning debt and a plummeting share price ensued. 

 

Sell-Side Chart at IPO

 

Why Will This Work?

Aston Martin’s new chairman Lawrence Stroll personally invested >$250M in Aston Martin through his investment vehicle Yew Tree Consortium in 2020 and became Chairman in April of the same year.  His final purchase occurred alongside in conjunction with the Mercedes Benz partnership in October. We believe this offering fixed every major financial and strategic problem at Aston.  First, the offering occurred in conjunction with refinancing all outstanding debt, pushing out maturities from early 2022 through 2025.  As a result, there is no longer near-term balance sheet pressure. Second, Aston Martin is known for beautiful, high-performance cars, but with second tier electronics due largely to a lack of scale. These scale issues also make the transition to electric vehicles prohibitively expensive.  The Mercedes partnership solves these issues. Mercedes will own 20% of Aston Martin in exchange for Daimler’s infotainment, electronics and EV architecture. 

 

New CEO Tobias Moers has an impressive track record from his time at AMG.  Since taking over AMG for Mercedes Benz in 2013, Moers took the division from marginal profitability to ~€3B of operating profit in 2019.  For perspective, Mercedes Benz owner Daimler earned just €4.6bn of operating profit in 2019. AMG generated ~65% of consolidated Daimler EBIT and much of this is due to Moers!  Stroll hired Moers into Aston in spring 2020 and made it very clear to us that he would NEVER have invested in Aston and become Chairman without Moers agreeing to run the business. Our reference checks on Moers and Stroll have been nothing short of stellar. Stroll grew up penniless in Quebec and became a billionaire several times over.  His first major success came from launching Ralph Lauren International, then helping found Tommy Hilfiger and more recently Michael Kors.  He has had several smaller successful businesses and investments as well, including owning Ferrari’s Montreal dealership.  Moers and Stroll have revamped virtually the entire management team with several executives being brought in from Mercedes, suggesting strong continuity going forward. 

 

Importantly, Stroll owns Racing Point, one of just ten Formula 1 teams. The team has been re-branded to “The Aston Martin Cognizant Formula One™ Team”.  Our diligence suggests that previously Aston sponsored Red Bull’s team and paid them £25M/year.  We believe they will now pay closer to £20M and the Aston Martin brand will be much more apparent and identifiable – an invaluable marketing tool.  Further, legendary racer and four-time world champion Sebastian Vettel left Ferrari to join Aston Martin and personally bought shares in the company.  Combine the F1 halo with 4 vehicles featured in the new Bond film No Time to Die, and 2021 should be a great marketing year for Aston Martin.

 

With only ~160 dealerships, it is fairly easy to track how Aston Martin is performing, especially since they are only targeting 2,500 sportscars and 3,500 of its new/first SUV, the DBX.  Inventories of sportscars are finally near normal levels and 2,500 would be the lowest figure sold in decades (de-risked).  As a result, the investment case near-term is completely dependent on the DBX.  Given the early backlog, Aston needs to sell ~45 DBXs per week to achieve their target for 2021. Our checks suggest Aston is selling >70 per week and the wait time has gone from April to June in the last 3 weeks.  As a result, we are highly confident that Aston will hit its 2021 targets.

 

Conclusion

On the heels of our successful investment in Ferrari, we closely examined Aston Martin at IPO.  We passed on the investment due to our negative view of previous management and our lack of confidence in their hockey stick shaped guidance.  We are now paying a small fraction of the price and valuation for a far superior management team, a strong strategic partner in Mercedes, a better marketing channel via Formula 1, and far more achievable targets amidst massive investor skepticism. Aston is on the verge of announcing tremendous success from its first major launch in years, the DBX.  We believe Stroll and Moers have earned a License to Kill.

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

- Results (2/25) / DBX sales newsflow (only ~160 dealerships)

- Reopening newsflow / F1 hype

- Analyst day (spring / depends on reopening) with more detail around targets and Mercedes partnership

 - Bond release (October) / marketing push

- Short covering at 8.3% SI (joke)

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