Ahead of what will be one of the most exciting stockmarket floats of recent years, Lee Wild kicks the tyres of Aston Martin to assess its potential as a winning investment.
Aston Martin is an ad man's dream. Loved by royalty and James Bond alike, this iconic brand is a flagbearer both for luxury goods and British engineering. It doesn't have a problem selling high-end sports cars to wealthy buyers, but will investors be as enthusiastic when the company floats on the London Stock Exchange this autumn?
Around for over 100 years and bankrupt seven times, Aston Martin has gone through a dramatic transformation in recent times. Owned by Ford for 20 years from 1987, the Americans sold Aston to Kuwaiti investors in 2007. They were joined by Italian group Investindustrial in 2013, and by Daimler who now own 4.9% of the business.
After years of rapid growth, Aston is now valued at around £5 billion, a valuation that would be good enough to gain entry to the FTSE 100. And, approaching what could be a peak in the economic cycle, Aston may have got its timing just right.
Unfortunately, there will be no retail offer – we understand the float is only open to employees and existing customers. However, a prospectus to be published on or around 20 September should include the IPO date when investors will be able to buy shares, and today’s registration document gives us plenty of detail, including latest first-half results.
In the six months to June, Aston increased sales by 8% to £445 million and adjusted cash profit by 14% to £106 million. Special editions like the Vanquish Zagato family and DB4 GT Continuation models were especially popular, while coffers were boosted by revenue from the consulting business (AMC), set up in 2016.
There was strong demand from Asia Pacific – currently responsible for 16% of total sales - during the first half, and Aston chiefs expect demand for the new Vantage and first deliveries of the DBS Superleggera – the £225,000 motor will go 211mph and get you from 0-60mph in 3.4 seconds - to generate strong growth in the Americas – 25% of sales - over the next six months.
In fact, Aston has introduced an extra shift at the Gaydon facility in Warwickshire to cope with demand. Almost two-thirds of the anticipated 6,200-6,400 cars that will be made in 2018 will roll off the production line during the second half.
Adjusted operating profit margin will slip 120 basis points to 13% in 2018 - the higher volume Vantage is cheaper than last year's favourite, the DB11 – but Aston is ambitious. Expect production to reach as much as 7,300 cars in 2019, 9,800 the year after and 14,000 medium term, driving margin above 20%.
These are big numbers, but Aston has an impressive track record. Annual car sales have rocketed from the low hundreds during the 1980s and 1990s to 5,098 last year, achieving compound annual growth rate in unit volumes, revenue and adjusted cash profit between 2015 and 2017 of 19%, 31% and 70% respectively.
Clearly, the so-called Second Century Plan introduced in 2015 has been a success. Phase one, aimed at stabilising the business, was achieved last year, and the second phase to strengthen the core business through an entirely new sports car range is almost done. Phase three is already underway with the relaunch of the Lagonda brand and plans for a first SUV, DBX in 2019.
Expanding the range of vehicles makes great sense as the number of high net worth individuals continues to increase. In China alone, they grew by 21% between 2015 and 2017 and globally the compound annual growth rate is put at about 7% between 2010 and 2016.
Aston believes the expanding pool of high net worth women will love its SUV. So will existing Aston Martin owners, 72% of whom also own an SUV, and other SUV fans looking to trade up.
There's little doubt that Aston has got its house in order and is now a fantastic business supplying a growing market for premium motors. It’s also in a far better position now to ride out any possible economic downturn.
Comparisons with Ferrari are inevitable. The Prancing Horse floated in 2015 and, after an initial blip, the shares soared from $30 to $150 by June this year. Adjusted second-quarter earnings jumped 17% year-on-year and, stripping out currency fluctuations, revenue grew too.
Under experienced chief executive and industry man Andrew Palmer and finance boss Mark Wilson, Aston looks to be in very capable hands. And, with industry dynamics also in the company’s favour, Aston is well worth a look when the shares begin trading in a few months’ time.
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