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Aston Martin Shares Plunged 12.5% on Rights Issue. Is It a Buy?

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Updated 5 Sep 2022

Key points:

  • Aston Martin’s share price plunged 12.53% on a massive rights issue.
  • The ultra-luxury car manufacturer raised £653.8 million (before expenses).
  • Should you buy Aston Martin shares? Read on to find out.

The Aston Martin Lagonda Global Holdings PLC (LON: AML) share price plunged by 12.53% after the ultra-luxury British car manufacturer announced that its £575.8 million rights issue was fully committed and underwritten.

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The rights issue is part of the £653.8 million (before expenses) capital raised announced on 15 July 2022, whose proceeds the company will use to reduce its debt burden and shore up its capital structure as it focuses on generating free cash flow from 2024.

Also read: The Best Shares To Buy Now.

Investors’ adverse reaction to the 4-for-one rights issue was much better than expected, given the magnitude of the capital raise. Aston Martin’s current market capitalisation is £521.97 million; hence, the capital raise is worth more than the company’s current valuation.

Aston Martin is in the middle of a turnaround strategy that has extended the brand’s market awareness resulting in 60.5% of the company’s customers over the last twelve months being new customers to the brand. The company attributed the shrug in brand awareness to rebranding the Racing Point Formula1 team into the Aston Martin team in 2021.

Aston Martin expressed its confidence that the capital raise will help it achieve its medium-term goal of 10,000 wholesale sales, generating revenues worth £2 billion and about £500 million in adjusted pretax earnings by 2024/25.

The ultra-luxury car manufacturer said it would use about half of the proceeds of the capital raise to repay some of its debts. In contrast, the rest will be used to shore up its finances by ensuring that the firm has adequate liquidity to fund its operations up to 2024.

The capital raise comprised placing 23.3 million new ordinary shares priced at £3.35 each to The Public Investment Fund to raise £78.0 million, with a subsequent underwritten rights issue to raise approximately £575.8 million.

After completing the capital raise, investors will watch Aston Martin gauge the company’s progress towards its medium-term goals. So, should you buy Aston Martin shares? The short answer is the decision depends on your investment goals and personal finances.

From a technical perspective, Aston Martin shares are trading above a crucial support level that could fuel a rally higher. But, conversely, a break in the support level could lead to lower prices.

*This is not investment advice.

The Aston Martin share price.

Aston Martin share price 05-09-2022
Source: IG

The Aston Martin share price fell 12.53% to trade at 422.40p, falling from Friday’s closing price of 482.90p.