Aston Martin Lagonda slumps on BofA Merrill Lynch downgrade

Bank of America Merrill Lynch downgraded its recommendation on shares of Aston Martin Lagonda to 'underperform' from 'neutral' on Monday and slashed its price target to 400p from 550p as it said it sees a "significant increase in financial risk" and expects another guidance cut.

Merrill cut its earnings per share estimates by 30-50% for 2020-21 ahead of the third-quarter results and said the recent bond issue only delays an equity raise.

"Trading at 1.6x 2020 EV/sales and 15.4x EV/adjusted EBIT, we see further risk to the multiple as near term headwinds persist," it said.

"Weak near-term demand is impacting profitability and we think the new bond launched in late September makes its financial position more challenging."

Merrill also said it reckons the group will have to cut its 2019 margin guidance again, especially in light of the weak run-rate all the way into Q3 2019.

"Our adjusted EBIT margin of 4.3% is some way below guidance of around 8% and consensus at 6.2%. The recent refinancing shows the significant liquidity issues Aston Martin is facing," it said.

"With significantly increased leverage, we think the company would not be well positioned for any external shock with close to no more borrowing capacity."

At 1240 GMT, the shares were down 7.2% at 441.00p.