Aston Martin shares sell-off extends as analysts downgrade Investing.com

Investing.com — HSBC downgraded Aston Martin Lagonda Global Holdings PLC (LON: ) shares to a Hold rating from Buy on Thursday and cut its price target to 118 pence from 180 pence.

Shares in the luxury carmaker fell 1.2 percent in London. Shares have lost nearly 30% over the past five trading sessions.

HSBC’s move comes amid growing concerns about Aston Martin’s forced transition to a smoother production rate and execution issues that have led to a high level of rework of near-complete vehicles.

Analysts at the investment bank highlight Aston Martin’s struggles with supply issues, which have been a recurring problem for the company.

They noted that meeting the new guidance for the second half of 2024 would require Aston Martin to sell almost twice the number of cars it did in the first half of the year.

“Given that Q3 should come in below current market expectations, it looks like Q4 must be a record for volumes,” analysts said in a note. “We welcome a transition to a relatively smoother volume run rate, but it has cash flow implications.”

HSBC also raised concerns about Aston Martin’s poor free cash flow (FCF), signaling risks to the strength of the company’s balance sheet.

Aston Martin ended the first half of 2024 with £247m of available cash and has since raised a further £135m of debt. However, HSBC’s forecasts indicate that liquidity could fall close to or below £200m by the first half of 2025, and net debt to EBITDA is expected to remain above 4x, potentially limiting financing options.

In its investment case, HSBC acknowledges the potential success of the brand’s refreshed range, but the firm anticipates earnings volatility and continued cash burn in the meantime.

“We believe a stretched balance sheet somewhat compromises the group’s strategy – longer terms and a fuller order book would be good for exclusivity and pricing, but less useful for cash flow,” the note said.

While new products and leadership under CEO Adrian Hallmark, along with the prospect of positive cash generation, could attract market interest, the broader context of profit warnings in the auto industry and Aston Martin’s specific challenges are likely to lead to investor caution , analysts noted.

HSBC’s new price target of 118p represents a modest 7% upside to the current share price. Analysts said the risks of Aston Martin missing its 2025 targets, including FCF development, justified the downgrade and adjusted price target.