Aston Martin – Upgrades are not always necessary.
All,
Please refer to our unchanged analysis here.
Aston Martin Lawrence Stroll’s denial that he is looking to replace Tobias Moer gives us some comfort as we believe Aston Martin should focus on delivery. The departure of a slew of senior operational managers in the last 12 months was not unexpected as Moer had publicly criticised the state the company was in when he arrived. Aston Martin will need to make hires of sufficient quality and willingness to work with Moer. If Moer is to be replaced, Aston Martin will need to demonstrate that the new boss will be a significant upgrade and not just a compliant voice for the board.
Moer under pressure:
- Having backed his restructuring plan, replacing the CEO now would be perverse. We are not surprised that there has been significant turnover amongst the senior team. Moer’s Project Horizon was designed to address significant weaknesses in Aston’s design and production. Also, in May 21, he described the situation at Aston as having been worse than he had thought. In that context either the CEO goes, or the old team does. Departures include David King (who was involved in the design of the Valkyrie), Peter Freedman (head of marketing), and Stuart Jeff head of product strategy and planning.
- Company strategy has not changed since Stroll picked Moer as CEO. Given the operational state, Aston was in, departures in the senior operational team will have been expected, although the board may harbour concerns that Moer’s style is making replacements hard to recruit.
- The profit warning in the trading statement was largely related to timing and Aston has begun to deliver the cars. Moer may be a difficult person to work with, but his remit is to deliver the medium-term goals for Aston (10,000 units, £2bn of Revenue and £500m Adjusted EBITDA along with £250-£300m of Capex/R&D). and so far the company is on track.
- According to one report, Steven Armstrong (of Ford) has already been approached. Stroll has denied that this is true. Freedman of Ford is UK-based and has been COO of Ford Europe in the past. He has a background in Jaguar.
Aston Martin has medium-term challenges:
- AML needs a lot to go right to meet its medium-term targets (10k units, £2bn of Revenue, and £500m Adjusted EBITDA). However, we see the outlook over the next 12-18-months as being supportive for the company.
- We still estimate that the company needs to exceed its liquidity to make the medium-term guidance. However, continued execution on the DBX derivatives and the Sport/GT model facelifts (2023 onward) could attract additional capital.
- We are evaluating opportunities to take a position in Aston Martin on the basis that the operational development and volumes of over 6,000 in 2021 look encouraging despite the Valkyrie delay.
Investment Considerations:
- We have not taken a position in Aston Martin at present. We find both bonds to be trading tight and see any value as being in the equity for now.
- We do not perceive any benefit in creating turmoil in the company by replacing the CEO unless Moer cannot recruit a sufficiently talented senior operational team willing to work for him. Unless Aston Martin could show any new CEO was a clear upgrade replacing him would be a negative for us.
- In the event of a change in CEO we would look at any negative reaction in pricing to assess whether it was significant enough to represent an entry opportunity.
Please reach out to discuss.
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055