Aston Martin hopes for flying start from IPO
Tech IPOs generate plenty of excitement, but for sheer theatre it helps to have something tangible – like a car.
When Ferrari sold shares to the public in 2015, it parked half a dozen of its most recognisable cars outside the New York Stock Exchange. This seemed to do the trick. Before long, the company’s shares were valued as highly as those of Prada.
You can bet Aston Martin will attempt something similar when it goes public in London later this year: James Bond’s DB5, the Valkyrie supercar, perhaps an Aston Martin submarine – it should be quite a show. The car maker is also open about its valuation ambitions. Chief financial officer Mark Wilson said he has Ferrari’s premium valuation very much in mind.
Potential investors should resist getting caught up in the romance. The company’s return to form has been impressive, but Aston Martin is no Ferrari – at least, not yet.
First-half earnings, published on Wednesday, were respectable. If revenue rises in line with projected unit sales, the company should, on an optimistic estimate, generate about £253.9 million (Dh1.2 billion) of earnings before interest, tax, depreciation and amortisation (ebitda) this year. Based on Ferrari’s enterprise value, that should give Aston Martin a valuation of more than £5bn, including debt.
Is that appropriate? The company’s pitch to investors has some attractions. Chief executive Andy Palmer plans to more than double the number of cars he sells in the medium term and he thinks ebitda margins will widen to about 30 per cent, helped by a new 4x4 and highpriced special edition models.
Right now though, Aston Martin’s profit margins trail those of Ferrari. And not long ago Aston Martin was loss-making.
These are by no means the only blemish on the vehicle. Car making is a capital-intensive business that faces costly technological and regulatory challenges.
With Brexit approaching, Aston Martin is also vulnerable to a decline in the pound or rise in trade frictions – it relies on Germany’s Daimler for supplies of engines and electronics. It also depends on the UK for about 30 per cent of sales. By contrast, the brand remains under-represented in Asia.
Aston Martin needed some clever ways to cope with these disadvantages. The 25 replica James Bond movie Goldfinger DB5s it plans to build aren’t just a brand-building exercise, they are also a cash cow, as customers will put down big deposits for the £2.75m vehicle before delivery. For that, you get revolving number plates.
Aston Martin hopes its IPO will help the once serially loss-making car maker complete its rapid transformation.
But as the consummately polite Bond would surely agree, a little modesty would go a long way.