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Coronavirus could slam the brakes on Aston Martin’s turnaround efforts

A slowdown in demand from China imperils the company's fastest growing market ahead of the launch of its DBX SUV later this year

Aston Martin Lagonda Global Holdings PLC - Coronavirus could slam the brakes on Aston Martin’s turnaround efforts

A £500mln bailout may not be enough for Aston Martin Lagonda Global Holdings PLC (LON:AML) to recover from its current abysmal performance on the London market as it could join the list of companies that could see the coronavirus outbreak derail their turnaround plans.

The crux of the issue, as with other firms, is the group’s reliance on Chinese customers, with the country the group’s fastest growing territory last year, expanding 28% and accounting for 9% of total wholesales.

READ: Aston Martin hits the skids as it falls to £100mln loss; CFO exits

In its results, the company said that the spread of the virus had dented both its supply chain and customer demand in the country, as Chinese factories making parts for its cars closed their doors and customers were kept away from showrooms either voluntarily or due to government-mandated quarantines.

Issues in such a fast growing market are a potential headache for the group as it looks to bring in more money to improve its cash balance, with the firm relying heavily on the upcoming launch of its DBX SUV later this year.

Last month Aston narrowly avoided bankruptcy for the eighth time in its history by agreeing the aforementioned £500mln deal with a consortium headed by Canadian F1 tycoon Lawrence Stroll.

AJ Bell’s Russ Mould said that the company will “struggle to meet previous expectations for sales in the country”, potentially complicating its future sales strategy as China was “expected to be a key source of income this year”.

The concern was echoed by CMC Markets analyst David Madden, who said the disruption in China was “very worrying as the firm’s star performer is right in the firing line of the health crisis”.

Looking further ahead, Peel Hunt’s Dominic Convey told Proactive that while Aston had said its supply chain was secure until the end of March, downward revisions to earnings could follow if the disruption was not under control by April.

“Any disruption to the supply chain will obviously have an impact on the outlook for the year...any product or component shortfall that requires a production stop will have an adverse impact”, Convey said.

Other companies in the firing line

Aston Martin is not the only British firm to see its earnings and supply chains put at risk by the outbreak.

Fashion brand Burberry PLC (LON:BRBY), which drew 40% of its sales from Asia last year, has had to close over a third of its Chinese stores amid the country’s quarantine efforts, which in turn is expected to hit its full-year numbers.

Similarly, Guinness owner Diageo PLC (LON:DGE) warned on Wednesday that it could suffer a £200mln hit to profits in its current year as the coronavirus outbreak shuts down bars and restaurants.

Shares in Aston Martin were down 11.5% at 346.2p.

Quick facts: Aston Martin Lagonda Global Holdings PLC

Price: 73.0708 GBX

LSE:AML
Market: LSE
Market Cap: £13.6 m
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