Small Cap Catch-Up: Aston Martin and Cake Box
Aston Martin Lagonda – 64% In Under Three Months, With More To Follow
The shares of Aston Martin Lagonda Global Holdings (LON:AML) have this week accelerated away, putting on a healthy 6% improvement in price to touch 361.40p at one stage on Wednesday before some inevitable profit-taking set in.
They closed last night at 352p, but still up 7% on the week.
So, is there more to come?
Recently, as far as investors are concerned, the luxury car maker has been making all the right moves.
Geely Buys In At 335p A Share
In mid-May the Geely Holdings group, China’s leading independent automotive group, committed some £234m of its funds in becoming Aston Martin’s third largest shareholder, paying 335p a share to do so as it increased its holding to 17%, behind the Saudi Arabia Public Investment Fund (17.9%) and Lawrence Stroll’s Yew Tree Consortium (20.9%).
Mercedes-Benz Agreement
In late June Mercedes-Benz amended and restated its Strategic Co-operation Agreement with the group, whereby it will continue to provide Aston Martin with access to a range of world-class technologies, including powertrain and electric/electronic architectures for current and future generation Aston Martin vehicles, including internal combustion engine, hybrid and electric vehicles.
Mercedes-Benz holds some 9% of the AML equity.
Lucid Deal
At the same time the £2.7bn capitalised company also announced a significant advance in its strategy, by entering into an important supply agreement with the US-based Lucid Group to create industry-leading ultra-luxury high performance electric vehicles.
The cash and shares deal, which has a £182m cost to the group, covers integration and supply agreements that would provide Aston Martin with access to Lucid’s industry-leading technology for its battery electric vehicles, including electric powertrains and battery systems.
Aston Martin’s iconic brand, ultra-luxury craftsmanship and high-performance in-house engineering excellence, with Lucid’s advanced technologies and expertise in luxury electric vehicles, could create an unrivalled combination with the capabilities to re-define the customer experience for future Aston Martin BEV products.
After this deal Lucid Group will own 3.7% of the AML equity.
Capital Markets Day
On 27th June the group hosted a Capital Markets Day for institutional investors and analysts at its Gaydon headquarters.
Boss Lawrence Stroll outlined his group’s strategic targets for 2027/2028 – aiming for a £2.5bn revenue, with a gross margin in the mid-40s%, generating an adjusted EBITDA of £800m and with a sustainably positive free cash flow.
At that time CEO Stroll commented that:
“I am extremely proud of the major industrial turnaround we have completed in the last three years, which has completely rebuilt this iconic company. We are building an ultra-luxury brand, supercharged by our transformational partnership with the F1 team and with our portfolio of highly desirable and performance-driven cars.
We have updated our EV strategy, working with world-class suppliers to complement our extraordinary in-house engineering and design teams.
In addition, we are now driving new levels of operational excellence to support our growth and deliver on our targets which focus on increasing value for each car we sell, aligned with the characteristics of a true ultra-luxury company.
With the heavy lifting now behind us, I have never been as confident in our future.”
Brokers’ Views – Barclays Says Shares Are Now ‘Less Risky’
Rating the group’s shares as ‘Overweight’ Barclays have recently upped their Target Price from 300p to 375p a share.
Ahead of next Wednesday’s H1 Trading Update they expect the second quarter earnings before interest, taxes, depreciation and amortisation to come in at £41m, which would be in line or slightly ahead of the company’s own guidance.
Even more positively they also anticipate a much higher outcome in the second half of the year.
Also of note is that Goldman Sachs have also come out very bullishly about the stock.
Their rating has switched from being Neutral with a Price Objective of 212p to now seeing the shares as a Buy, looking for 413p.
The brokers are now expecting the company to launch a new core model every quarter through to the end of next year, which they suggest will boost the group’s average selling prices and profitability.
My View – Despite 64% Three-Month Gain, Still Further To Go
This group’s shares have performed very well since we featured the company in early May, with them then standing at 213.5p.
They are now trading at 350p, showing overall a very healthy 64% gain in just under three months.
I do believe that they still have a lot further to go yet, especially if Stroll’s Strategy comes to fruition.
(Profile 10.05.2023 @ 213.5p set a Target Price of 265p*)
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Cake Box Holdings – Will Crown Court Case Embarrass The Tree-Felling Boss And His Company?
The story behind the establishment and later success of the egg-free cream cake franchise Cake Box Holdings (LON:CBOX) is already well-known to AIM investors.
Brokers Shore Capital took the company to market way back in late June 2018, raising £16.5m for vending shareholders and with its shares Placed at 108p each, giving the group a £43.2m valuation.
The first concept store opened in East London in 2008. The business expanded to a franchise estate of 91 stores when it was listed on AIM.
Since the AIM float, the group has grown to 205 franchise stores with a further 27 kiosks, giving a total of 232 outlets.
CEO Sukh Chamdal, 61, recently outlined his plans for further retail growth.
“We have continued with our steady store opening program to add to the 205 Cake Box shops we had at year end.
As we approach the 250 target number of stores we set ourselves at our IPO almost 5 years ago, we continue to look to stretch ourselves with a new target of 400 and new ways to provide the UK consumer with our unique egg-free fresh cream cakes.”
The group has grown predominantly through franchise expansion and today does not directly own or operate any of Cake Box’s stores, although its Executive Directors have all previously run their own franchise stores.
The group’s cakes are completely egg-free, which has no effect on taste and texture and allows the group to service a much larger potential market, including those customers who are unable to eat eggs for dietary or religious reasons.
Latest Results
The year to end March 2023 saw revenues rise 5.6% to £34.8m (£33.0m), while adjusted pre-tax profits had fallen 22.9% to £5.4m (£7.0m), slashing earnings 31.7% lower at 10.6p (15.8p) but with a 7.8% increased final dividend of 5.5p (5.1p) per share.
The Equity
With 40m shares in issue, even after selling 3m shares at 350p each in November 2021, Sukh Ram Chamdal is still the largest holder with 25.41% of the equity.
Other larger holders above 3% include Canaccord Genuity Wealth (6.48%), Ennismore Fund Management (5.52%), AXA Investment Managers (4.75%) and Amati Global Investors (4.67%).
Brokers’ Views – Shares Are A Buy
Analyst Wayne Brown at Joint Broker Liberum Capital rates the group’s shares as a Buy looking for 200p a share.
His estimates for the current year to end March 2024 are for a rise in sales to £37.6m, with profits of £5.8m, earnings of 10.9p and a total dividend of 8.4p (8.1p) a share.
While Clive Black and Darren Shirley, analysts at Shore Capital, are equally bullish, looking for £38.5m sales this year and then £42.5m in 2025, generating £6.5m of profits, worth 12.1p per share in earnings.
Chelmsford Crown Court Case
On 22nd June, the vegan Cake Box boss Chamdal and four others appeared at Chelmsford Magistrates Court and pleaded not guilty to charges of causing the act of or the felling of 132 trees in a woodland at Debden Hall, Loughton near Epping Forest, Essex.
The action concerning the felling of the protected trees, in an 18-day period in March 2021, was brought by Epping Forest District Council.
If found guilty of breaching a Tree Preservation Order, Chamdal had faced the prospect of a £20,000 fine in a Magistrates Court case.
However, the case has been passed up to be heard later this month at Chelmsford Crown Court.
In a Crown Court Case such a fine could be unlimited and even could be requiring a replacement of all of the trees.
Earlier this month it was suggested that the criminal prosecution of its boss could prove a serious embarrassment to the company.
My View – Will Socially-Conscious Investors Turn Sellers?
I noted that one of the institutional holders of Cake Box shares has almost halved its position in the last week or so, taking it below the 3% declaration point.
CRUX Asset Management previously held 4.75% of the equity.
On 3rd July, when the case was reported in the Press, the investor reduced its position to 3.8%.
On 10th July it sold off another chunk of stock, taking its holding below declaration to 2.8%.
The big question is – will other ‘socially-conscious’ investors follow suit when the case goes to Crown Court and gains more prominence?
The £65m capitalised company’s shares, which hit 381p in November 2021, and have since been down to 92p, are currently trading at around the 162p level, having risen 12p on Friday’s trading.
(Profile 30.07.19 @ 180p set a Target Price of 240p*)
(Asterisk * denotes that Target Price has been achieved since Profile publication)
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