Aston Martin: The float that left the City shaken, not stirred
Over the years, Aston Martin observers have watched the firm’s most famous client, James Bond, career into the river Tiber, skid across the polar ice caps and hurtle off an alpine road in its cars. Each time, ludicrously, he emerges alive.
So when chief executive Andy Palmer told investors: “We don’t make cars, we make dreams,” ahead of Aston Martin’s stock market float this time last year, one could forgive them for having high hopes.
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But the 12 months they have endured since then have been nothing short of a nightmare for Britain’s most famous luxury car firm, with stocks plummeting more than 70 per cent in value since Aston hit the market this time last year. They started at £19 a share. Now, you can pick one up for little over a fiver.
Finances under fire
AJ Bell analyst Russ Mould says: “Floating on the stock market can boost a company’s reputation and provide an opportunity for the public to buy into the story. However, it can also expose a company to criticism from investors who are watching every move like a hawk”.
In Aston Martin’s case, most of those moves have been bad. In June, it shocked investors by warning it could have overestimated its annual sales by as many as 1,000 cars.
For a company that only sold 6,400 of them last year, that’s a big miscalculation. A week later, it declared losses of £78m in the first half of the year, a figure analysts called “a significant reality check” for investors.
What went wrong?
Some have put it down to bad timing. Brexit uncertainty has left manufacturers reeling, while an unexpected slowdown in Aston Martin’s key Chinese market has hit the luxury car maker especially hard.
CMC Markets analyst David Madden says: “The high-end brands tend to weather the storm better than middle-of-the-road firms, but a slide in global consumer sentiment has hurt Aston Martin nonetheless.”
Furthermore, the luxury car maker’s hopes appear to be pinned on ambitious plans to launch seven models in seven years, including an SUV in 2020, the DBX. Last week, to help pay for it, the firm raised $150m, with a perilously high interest rate of 12 per cent.
This comes with the option of another $100m issue with an even higher 15 per cent interest rate. But that depends on the firm succeeding with the DBX enough to sell 1,400 of the cars. Aston Martin was unavailable for comment for this piece, but directors will have their fingers crossed.
Overall, the upcoming model has caused the firm to wrack up debts of £732m. Given that Aston Martin has already gone bust seven times in its 106 year history, that is a potentially worrying figure for investors.
Spot the difference
However, some think the float was doomed on a more fundamental level: the valuation.
Many people bought into Aston’s Initial Public Offering because they thought it would perform similarly to another marquee luxury car brand: Ferrari, which has enjoyed share price growth of 250 per cent since its 2016 listing. Indeed, the initial £5bn valuation was calculated using the Prancing Horse’s record as a benchmark.
But the two do not stack up. Ferrari sold 8,398 cars the year after its float, and turned over about £3bn. This year, Aston Martin expects to sell 6,400 cars, and last year’s revenues were just £1.1bn.
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“The £5bn price tag was simply too high and left the management team on a hiding to nothing,” says Mould.
In the face of all these headwinds, directors will hope they can prove the doubters wrong, channel the spirit of 007 and emerge triumphant.