Aston Martin IPO: what you need to know

Aston Martin’s IPO has helped shore up the business but shares have fallen since. We look at the offer and what has happened to Aston Martin’s valuation.

Aston Martin
Source: Bloomberg

‘This is a monumental moment,’ – Aston Martin chief executive Andy Palmer.

Rev up your engines and shift into gear – Aston Martin has gone public following one of the most notable initial public offerings (IPO) this year. Investors are now able to get a slice of one of the most luxurious names in British business as the 105-year-old company, famed for its high-performance sports cars such as the DB5 made famous by James Bond, looks to make its debut after recovering from years in the red and initiating plans that will see the firm release a swathe of new models over the coming years.

With much of Britain’s car industry having fallen into foreign ownership over the last four decades, including those popular with more affluent customers like Jaguar and Bentley, Aston Martin would be the first UK carmaker to list in London since the 1980s.

After installing confidence in both its management and its strategy over the past three years and reporting record sales as it announced its IPO plans, Aston Martin has given investors plenty of reason to get excited. But, having been bankrupt seven times during its rich history and with Brexit lurking round the corner there is also a whiff of caution in the air.

What was Aston Martin valued at when it launched its IPO?

Aston Martin launched its IPO on the London Stock Exchange (LSE) 3 October 2018. Aston Martin was anticipated to be worth £5 billion once it made its premium listing on the Main Market, but that ended up being at the top end of its range after setting an IPO price of £19 per share to give an valuation range of £4.3 billion, the bottom end of its £4.02 billion to £5.07 billion target range.

Aston Martin did not raise any new equity and all of the IPO shares were being sold by existing shareholders. It had 200 million preference shares and further outstanding warrants that were converted into shares as part of the IPO.

In the period after the IPO Aston Martin shares have not fared well, recording the worst first-day performance of any newly-listed stock this year and sliding to a low of £18 per share.


Who owns Aston Martin?

Before the IPO, Aston Martin was owned by Kuwait’s Investment Dar and Italy’s Investindustrial.

Importantly, Aston Martin did not raise any funds or issue new shares as part of its IPO, with the two major shareholders selling-down their respective stakes instead. However, both Investment Dar and Investindustrial retained a significant chunk of their shareholding in Aston Martin after the IPO. Mercedes-Benz owner Daimler, which acquired a 4.9%, non-voting stake in the British carmaker back in 2013, didn’t intend to sell any shares as part of the IPO and converted all of its holding into ordinary voting shares.

Investment Dar was part of the consortium of investors that purchased Aston Martin from Ford Motor Co in 2007. Ford had taken a controlling stake in 1987 before taking full ownership of Aston Martin in 1994, eventually offloading the business for £479 million.
The existing investors have injected substantial but necessary investment, thought to be hundreds of millions of dollars, into Aston Martin since 2013 when the business was still making severe losses and suffering from a lack of direction.

Aston Martin listing to occur as it accelerates turnaround plan

Aston Martin has long been famous for its luxury sports and GT cars but fell into trouble as sales slumped in the wake of the financial crash that took its toll on its wealthy customer base, those with a couple hundred thousand to splash out on the likes of the DB11, Vantage or DBS Superleggera, and after it failed to adequately invest in new models to keep excitement around the brand alive.

However, confidence has been reinstalled by the man at the helm, Andy Palmer, a former Nissan Motor executive who led the development of the Nissan Leaf before becoming chief executive of Aston Martin in 2014. He immediately started work on a turnaround plan aimed at reversing years of heavy losses and subdued demand and, since then, Aston Martin has rolled out three major models and seen sales reach new record highs, helping the carmaker achieve a landmark profit in 2017.

How has Aston Martin performed over recent years?

‘We’ve got a very solid balance sheet now, very solid results. As we move into the third phase, which is the portfolio expansion, it also means we’ve got plenty of runway in front of us,’ – Palmer.

Aston Martin has been patient with its plans to list, waiting until it had strengthened the balance sheet and returned to profit before coming to market. Aston Martin is the midst of a three-stage turnaround plan that has already yielded success, with the carmaker finally escaping the red last year for the first time since 2010. It now has seven consecutive profitable quarters under its belt.

Aston Martin financial performance since 2015

(£, millions) 2015 2016 2017 H1 17 H1 18
Revenue 510.2 593.5 876 410.3 444.9
Cost of sales (345.3) (371.9) (496.2) (251.2) (244.5)
Gross profit 164.9 221.6 379.8 159.1 200.4
Selling and distribution costs (32.1) (41.9) (60) (30) (45.1)
Total admin costs (191.1) (212.0) (171)   (74.1) (90.9)
Operating profit (loss) (58.3) (32.3) 148.8 55 64.4
Net financing costs (69.7) (130.5) (64.3) (34.7) (43.6)
Pretax profit (loss) (128) (162.8) 84.5 20.3 20.8

 

Where does Aston Martin sell its cars?

Aston Martin has developed a global presence and spreads its sales fairly evenly across multiple geographical regions. The UK is still the biggest individual market for Aston Martin with 30% of all its cars being sold in its home market, followed by the rest of Europe, the Middle East and Africa which account for 26% of unit sales. A quarter of Aston Martin’s sales are made in the Americas, led by the US market, with the Asia Pacific region accounting for 16%.

Where does Aston Martin produce its cars?

Aston Martin’s primary production facility is based at the carmaker’s headquarters in Gaydon, Warwickshire. The purpose-built facility opened in 2003 and is described as ‘one of the most modern and advanced automotive manufacturing facilities’ of its type in Europe.

It currently has two other sites, both based in the UK. Its Wellesbourne factory produces special edition models (new models) like the main Gaydon site, while its operation in Newport Pagnell creates heritage models (those based on old models) and continuation models (adaptations or updates of newer models).

Why did Aston Martin launch an IPO?

‘Since launching the Second Century Plan in 2015, Aston Martin Lagonda has been transformed into a luxury business focused on creating the world's most beautiful high-performance cars. This transformation has delivered significant growth in revenues, unit volumes and profitability’ – Aston Martin.

Aston Martin has ambitious plans as it moves deeper into its second century of business. Since officially launching the turnaround plan in 2015 the company has unleashed a string of new models to revitalise the business. Aston Martin replaced the DB9 with the DB11, which is providing the foundations for its new GT and sports cars that have followed and those that will continue to be released over the next few years. This includes the new Vantage that replaced the V8 Vantage S and V12 Vantage S models, and the new DBS Superleggera, both of which were launched this year.

The roll-out of those new models was the first part of its turnaround plan, giving it a base to build strong foundations upon. The second ‘core strengthening phase’ will be completed once it has released new convertible versions of the Vantage and DBS Superleggera.

Work on the third phase aimed at expanding its portfolio is already underway. This will see Aston Martin re-launch the Lagonda brand and the introduction of an entirely different type of car as it begins to produce its first-ever SUV, the DBX. This will broaden Aston Martin’s focus to three types of vehicles: sports and GT cars, SUVs, and sedans.

This strategy will see Aston Martin launch a new core car every single year between 2016 and 2022, alongside two new special edition models which are great for marketing and demonstrate the technical abilities of its near 1000-strong team of designers and engineers. The Aston Martin Valkyrie released in partnership with Red Bull Racing Advanced Technologies is a prime example as a road car with F1 abilities. It doesn’t plan to confine its special releases to newer models, and intends to release a range of heritage vehicles that ‘recognise Aston Martin’s proud history.’ The release of the DB4 GT earlier this year will be followed up with at least one new special heritage car being released annually.

By the time it has completed its Second Century Plan at the end of 2022 it will have launched seven new core cars which are expected to be in production for seven years (dubbed the ‘7 x 7 x 7 strategy’), complimented by numerous derivatives (like convertible or coupe versions), as well as special and limited edition releases that inject interest into the brand and fuel the exclusive nature of Aston Martin.

Aston Martin’s business, as one catering for the super-wealthy, is not about volumes but pricing power and how well older cars retain their value, which in turn are both seen as indicators of brand perception. This is why the company has followed in the footsteps of other luxury carmakers by releasing branded yachts and apartments, even opening a store in Mayfair flogging pricey Aston Martin t-shirts and accessories.

Aston Martin goes electric

Aston Martin also announced in March that it is also going green with plans to relaunch the Lagonda marque – described as ‘the first all-electric luxury automotive brand.’ The carmaker intends to produce ‘ultra-luxury’ SUVs and sedans that will also include autonomous driving technology.

Aston Martin looks to expand facilities and enter new markets

With so many new cars in the pipeline and demand outstripping supply for this year and some of the next Aston Martin’s plan also involves expanding its production facilities and moving into new geographical regions to capture the growth from emerging markets.

The company is developing an entirely new production plant in St. Athan, Wales, which it expects to open in 2019 and become the centre of its SUV manufacturing operations with the hope of starting-up production in the first half of the year.

Aston Martin sees most of its future sales growth coming from emerging markets, particularly in the Asia Pacific region where it believes its brand is “under-represented” to the growing amount of high net-worth individuals. This is another reason why what can seem like frivolous projects – such as slapping its brands on powerboats and even a submarine – are in fact crucial marketing activities that are being used to raise brand awareness.

Its move into the fast-growing SUV market is also being fuelled by Asia. Driven by the release of its SUV in the region in 2020, Aston Martin expects the Asia Pacific region to account for over 25% of total unit sales in the future from just 16% at present. Its home market looks set to drop its contribution as a result, with the firm seeking ‘less reliance’ on the UK. For other, more developed markets like the US Aston Martin has plans to improve its position by appointing more dealers and upping its marketing efforts.

Aston Martin’s outlook points to substantial medium-term growth

Aston Martin reported a fall in production during the first half of 2018, down to 2299 units compared to 2439 a year earlier after facilities transitioned to making different models and to accommodate new versions of the DB11 (Volante and AMR) and the Vantage. However, production is on the up after rising to 1336 units in the second quarter from only 963 in the first following the launch of the DBS Superleggera in June.

Still, Aston Martin’s progress on pricing has more than offset the drop in output and signals that profitability is set to improve dramatically over the coming years even if it misses its production goals. Revenue was up over 8% in the first half due to increased demand from the Asia Pacific region and the boost provided by new special editions, led by the Vanquish Zagato family and DB4 GT models.

The average selling price of Aston Martin’s core models has more than doubled over the ten years to 2017, partly because Aston Martin ensures demand outstrips supply for at least the first year to keep the ‘desirability, scarcity and exclusivity’ of its cars intact. However, Aston Martin has also had to restore its title as a perfectionist by improving quality in order to charge such high prices and not to fall behind the swathe of other luxury carmakers. The new DB11 that sits at the heart of Aston Martin’s new models is ‘twice as good as DB9 in terms of manufacturing quality’ based on the number of defects and customer satisfaction has improved. This has helped lower costs too, with the cost of meeting claims under the DB11’s warranties a fifth less than that incurred with the DB9. Although costs are currently relatively high versus some of its peers, this will continue to fall as Aston Martin ramps up production.

Annual output this year will reach 6200 to 6400 units – more than two thirds of which will produced in the second half, pushing its main Gaydon facility ‘above its typical optimised production capacity’ with the introduction of an additional shift. Still, output and revenue will rise in 2018 but its margins will come under temporary pressure, with its adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) margin to contract to 23% from 23.6% in 2017, and adjusted Ebit margin tightening to 13% from 14.2%.

Over the medium term, Aston Martin expects to raise overall production to 7300 units in 2019 before increasing it further to 9800 units in 2020, with plans to get annual output above the 14,000 mark in the years thereafter. By then, it hopes to have grown its adjusted Ebitda margin over 30% and its adjusted Ebit margin above 20%.

Aston Martin sells unique proposition but follows in the footsteps of Ferrari

Aston Martin is trumpeting a unique offering to investors but attention has already turned to Italian sports car maker Ferrari, which was the last major carmaker to go public with a listing in New York three years before Aston Martin’s arrival. Ferrari has seen its valuation climb from $10 billion upon listing to around $24 billion today.

Analysts at Berenberg were quick to dampen the mood around Aston Martin’s IPO by highlighting Ferrari’s superiority in several areas, including higher average selling prices, better ability to retain value in the second-hand market, longer waiting lists and cheaper costs per car it produces.

Aston Martin may openly play on the emotive feelings that some hold for its brand but, financially, some argue the company does not have the right to consider valuing the business at similar multiples to that of its Italian counterpart.

There has also been growing concern about the way that Aston Martin capitalises most of its research and development costs rather than putting it through the profit and loss account like Ferrari, and how this flatters Aston Martin’s headline numbers.

This should also prompt investors to consider Ferrari as another option. The company’s performance has improved significantly since going public, as revenue climbed 9% from EUR2.85 billion in 2015 to EUR3.10 billion in 2016, rising a further 10% in 2017 to EUR3.41 billion. Pretax profit has risen by over 30% annually in recent years, climbing from EUR432.2 million in 2015 to EUR567.4 million in 2016 and to EUR746.2 million in 2017.

Aston Martin IPO: shrugging off Brexit or a way for owners to cash in?

Aston Martin, having got back on its feet, argues its strategy and listing is part of a future strategy that goes far beyond the threats of Brexit and US President Donald Trump’s international trade tariffs, but it is hard not to be drawn to the coincidental timing of Aston Martin’s listing just before the outcome of Brexit is about to become clearer (hopefully).

Read more about the global trade war and Trump’s fight with the world

Palmer has said ‘Brexit is not a major effect for us’ and that any tariffs between the UK and the European Union (EU) would simply mean it would pick up market share in the UK from more expensive European rivals, and vice-versa. But even if that seems like a casual view on the threat that tariffs pose, Aston Martin knows that it has a customer base that is more than capable of handling higher prices for their luxury cars.

Whether its higher tariffs on the cost of importing German-made engines (with Daimler and Aston Martin also working together on components) or tariffs on its cars being imported to the US that makes Aston Martin’s cars more expensive the company plans to ‘pass that through to the customer.’ What has been more of a concern is the threat of longer custom checks when automobile parts cross borders following the UK’s departure from the EU, although Aston Martin has already increased stock levels in preparation for any short-term shocks that might arise.

Still, it is hard to ignore the fact that Aston Martin’s current owners cashed in on some of their investment before finding out what the UK’s future beyond Brexit actually holds, potentially avoiding any risks from a no deal scenario, with reports that some shareholders made up to a ten-fold return on their investment. Still, these concerns have largely been abated by the fact that all of Aston Martin’s major shareholders kept significant stakes in the carmaker after the IPO.

Read more: how could Brexit impact the UK automotive industry?

Aston Martin IPO: an opportunity to grab a share of British heritage

Aston Martin is offering investors a rare opportunity to gain exposure to an independent British carmaker, and one known for its luxury across the world. The cars might be out of your budget but the shares aren’t, although valuation may be a sticking point for some. In addition, rising investment and its costly plans are necessary for its future and already proving to be effective by getting Aston Martin back into the black, but there are concerns about how well it will be able to weather an economic downturn after the position it found itself in soon after the last one.

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