Flight of a Valkyrie
Man who put the slide of Aston Martin into reverse tells Alan Tovey the growth of the super-rich is helping
Aston Martin’s new hybrid car shows how flexibility has saved the prestige brand
With an average selling price of £167,000, Aston Martins aren’t affordable to most motorists. However, the company’s plan for a London Stock Exchange float means those more likely to drive a Daihatsu than a DB11 may soon be able to own some of the 105-year-old business that makes 007’s choice of wheels.
Bosses at the company based in Gaydon, Warwickshire, are reluctant to put a value on Aston, which sold 5,117 luxury sports cars last year, generating revenues of £876m and an £87m pre-tax profit. However, chief financial officer Mark Wilson is “comfortable” with the £5bn valuation being bandied around.
“The market will determine our value, but that’s similar to Ferrari, and we’re comfortable with that,” he said, referring to the Italian supercar manufacturer which listed in New York three years ago.
On the face of it, Aston has undergone a spectacular turnaround under chief executive Andy Palmer since 2014. Plain-speaking Palmer, a veteran of Japanese giant Nissan, was parachuted in to sort out the company, which has gone bankrupt seven times.
He’s mapped out a strategy of regular new models, embracing electrification, adapting to motorists’ changing tastes by building an SUV, and high-profile projects that not only attract rave reviews from petrolheads but also make money.
No wonder the Italian and Middle Eastern private equity funds that have shouldered years of losses are keen to get some of their investment back. Crucially Daimler, which owns almost 5pc, is staying on board.
Sketching out a secondary selldown of shares by the private equity funds that will eventually see a free-float of 25pc of the business, Mr Palmer said Aston had reached a “key milestone”, with rising sales and profits and demand outstripping supply. But Aston is not just about cars, he said. “We are a luxury company and not just a car company.”
The Aston brand is also working on a flying car, as well as a personal submarine and even branded homes.
Catering to the luxury market means the company can attract a premium valuation and Mr Wilson said the growth of the super-rich – he refers to them as “high-net-worth individuals” – means Aston can pump up prices as demand exceeds production. “We’re creating the most beautiful pieces of automotive art that also have amazing performance,” he added. “Our cars are rational purchases and an asset class that appreciates. If you bought a DB5 [the car made famous by James Bond in Goldfinger] it would be worth 30 times what you paid for it. That’s what makes this segment resilient.”
Mr Wilson said the management has finally got Aston running as smoothly as one of its V12 engines.
“It’s different now. The company’s done many wonderful things, creating great cars but not enough cash to support them,” he added. “Now we’re economically rational.”
One example of this is the Valkyrie hypercar. A collaboration with Formula 1’s Red Bull Racing, it is intended to be the fastest road-legal car ever. The production run will be just 150, with cars priced between £2m and £3m. Mr Wilson said the Valkyrie – which has sold out, though the first will not be delivered until 2019 – is an example of this rationality.
It’s heady stuff. But while there might be more wealthy people willing to spend almost £200,000 on a supercar, the market has changed. Effectively the cost of such vehicles has gone through the floor in the past decade and there are more of them about, and more manufacturers. This means you’re unlikely to see your “average” new Aston – i.e. not a limited-edition model – soar in value.
Comparing Aston to Ferrari might not be such a great measure, either. Cars with the prancing horse badge sell for about €100,000 more than the average Aston, and the Italian company sells about 2,000 more vehicles a year – though it should be noted that Aston says it wants to get production up to 14,000 a year in the “medium term”. Ferrari’s waiting list is also understood to be longer and its cars depreciate at a lower rate.
In the year Ferrari floated it shipped 7,664 cars, generating revenues of €2.8bn (£2.6bn) and a net profit of €290m. Compare that with Aston and
‘We’re creating the most beautiful pieces of automotive art. Our cars are rational purchases and an asset class that appreciate’
the British manufacturer could be seen to be over-revving.
Then there’s Aston’s accounting. Perfectly legally, Aston capitalised only 5pc of its £225m R&D spend, according to automotive analyst Evercore ISI. Capitalising R&D as an asset pretties up the accounts.
Free cash flow is another area where Aston benefits from smart – and perfectly allowable – management. It takes big deposits on cars. Effectively, petrolheads provide cheap cash.
Speaking on BBC Radio, Mr Palmer said he’s not worried about issues such as Brexit. “Being a luxury company [means] we are relatively impervious to those kind of changes,” he said.
One who questions the high-octane valuation – and future – of Aston is Evercore’s Arndt Ellinghorst. “I don’t know of a single automotive industry executive who doesn’t have sleepless nights over Brexit,” says the analyst. “In previous recessions Aston’s sales have tanked.” He added: “Still, it’s good to have a CEO with a positive attitude.” and leadership expertise” in a varied career that included stints in the energy and aerospace sectors.
However, the board decided to oust Mr Ingram because of what an insider described as “culture differences”.
His departure received a positive response from investors with the shares rising 2.2pc to £13.95.
Analysts at Stifel called the boardroom coup “an unexpected turn of events to say the least considering he only joined the company a few months ago”.
One person with knowledge of the situation said: “Diploma has been doing very well over the long term and the board decided they couldn’t risk breaking it.
“Richard looked good on paper and had the manufacturing experience but this was his first job running a plc, and his predecessor was a very hard act to follow.”
Chairman John Nicholas will take over as interim chief executive until a permanent replacement is appointed.
Mr Ingram declined to comment.