Aston Martin Lagonda Global Holdings PLC (LON:AML) saw its shares go into reverse on Monday after Bank of America Merrill Lynch downgraded its stance for the luxury carmaker to ‘underperform’ from 'neutral' and slashed its target price to 400p from 550p.
In a note to clients, analysts at the US investment bank said they expect a “very weak” third-quarter performance from the firm based on slow consumer demand, and also highlighted its mounting debt pile, which is expected to grow to £1.1bn in 2021.
This is the second time BofA has cut its rating for the car manufacturer this year, having moved down from 'outperform' in July.
In September, Aston Martin raised £120mln in bonds, luring investors in with steep 12% interest rates until April 2022, with the new capital to be invested in the upcoming launch of its “high-performance SUV”, the DBX in December.
Analysts at BofA said: “Although the capital raised (US$150mln already + up to another US$100mml contingent on 1,400 DBX orders) alleviates some short-term cash concerns, this is clearly not a solution in the long term.”
The bank also said a further cut to guidance is “very likely”, predicting Aston Martin's adjusted profit margin to sink as low as 4.3%, some way below company guidance of around 8%, and market consensus which hovers at 6.2%.
The European auto sector has struggled with worsening consumer sentiment as well as concerns over the potential fallout for demand and manufacturing from Brexit.
BofA warned that the cash position of the business could drop to as low as £54mln in 2021, and rising debts means “the company would not be well-positioned for any external shock with close to no more borrowing capacity”.
Aston Martin shares ran 7% lower to 441.1p in lunchtime trade on Monday.