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Highlights:
- Jefferies downgrades Aston Martin to 'hold' due to liquidity issues and supply chain disruptions.
- Aston Martin’s net debt is expected to reach £1.4 billion by the end of 2024, with negative free cash flow of £424 million.
- Revenue forecast cut by 12% due to weaker demand in China, and the price target for shares reduced to 120p.
Aston Martin Lagonda Global Holdings PLC (LSE:AML) has been downgraded to a 'hold' rating by investment bank Jefferies, citing growing concerns over liquidity and supply chain disruptions, especially in China. The downgrade follows a profit warning issued earlier this week by the British luxury carmaker, which highlighted significant challenges in its operations.
Jefferies pointed out that while Aston Martin managed to secure an additional £135 million in liquidity in August, this short-term boost will only cover the immediate cash burn, leaving the company in a precarious financial situation. By the end of 2024, Aston Martin's net debt is expected to climb to £1.4 billion, as cash flow remains under pressure. The bank forecasts a negative free cash flow of £424 million for the year, raising the likelihood that the company may need to raise additional equity to support its operations.
In addition to liquidity concerns, Jefferies also highlighted the ongoing supply chain disruptions that have particularly affected Aston Martin’s performance in China, one of its key markets. Weaker-than-expected demand in the Chinese market, combined with these supply chain issues, has led Jefferies to revise its revenue forecast for Aston Martin, cutting it by 12% for 2024. The company is now expected to generate around £1.5 billion in revenue for the year, a significant reduction from previous estimates.
These challenges have resulted in Jefferies lowering its price target for Aston Martin shares from 250p to 120p, reflecting the firm's more cautious outlook on the company’s future performance. The investment bank stressed that there is "no more room for error" in Aston Martin’s financial strategy, given the heightened risks surrounding its liquidity position and ongoing operational difficulties.
Despite the recent cash infusion, the pressures of rising debt, negative cash flow, and supply chain challenges suggest that Aston Martin’s path to recovery remains uncertain. As of Thursday afternoon, Aston Martin shares were trading at 107.65p, reflecting the market’s response to these concerns.
