(Bloomberg) -- Aston Martin Lagonda may need to price its first ever sports utility vehicle at a discount in order to raise more money via a bond sale tied to a sales target, according to the only equity analyst with a sell rating on the shares.
The British carmaker will have to divert all resources to ensure it gets 1,400 orders for the DBX within nine months “at any cost,” according to Panmure Gordon's Sanjay Jha. The target must be met for the company to be able to issue a further $100 million in secured or unsecured debt, under terms of a bond transaction announced Wednesday.
By entering the agreement, management was “tying the fortunes of the company to the success of a single product,” Jha wrote, cutting his Street-low price target even further, to 288 pence a share from 327 pence, suggesting about 40% downside from Wednesday's closing price.
“If Q4/19 trading is worse than expected or it faces a recall, then AML could face another liquidity squeeze but without any further recourse to debt markets,” he added. Aston Martin's pound bonds have lost almost 2.5 points since announcing the new financing terms.
A spokeswoman for the company did not immediately respond to a request for comment.
Jha's note came on the same day that Moody's cut its outlook on Aston Martin's debt to negative. The rating reflects “the increased debt from the notes issuance, which will result in continued very high leverage for at least the next 24 months and delay de-leveraging further,” analyst Tobias Wagner wrote in a report. The long-term rating on the company's debt was also cut by one notch to CCC+ at Standard & Poor's on Wednesday.
Aston Martin rose 5.9% at 2:57 p.m. in London, following its biggest three-day decline in more than a month. The stock is still about 70% below its October initial public offering price of 1,900 pence a share. Shares plunged in July after the company slashed its sales forecast and reported an operating loss for the first half of the year.
Besides Jha's recommendation, Aston Martin has 5 hold ratings and 4 buys among analysts tracked by Bloomberg.
--With assistance from Laura Benitez.
To contact the reporter on this story: Joe Easton in London at jeaston7@bloomberg.net
To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Namitha Jagadeesh, Paul Jarvis
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