Aston Martin shares crash, but have sellers got it right?
15th November 2018 12:52
Aston shares were overpriced at IPO last month, but opinion remains divided over what they're really worth, writes Graeme Evans.
Rather than staking a claim to join the FTSE 100 index, Aston Martin shares continue to frustrate investors following the luxury car maker's hotly-anticipated IPO at the start of October.
The stock started life at 1,900p only to slump as low as 1,375p by the end of last month. Today, the company stood at 1,524p following a slide of 5% in the wake of its maiden set of quarterly results.
The figures looked to be impressive, with third quarter revenues of £282 million up 81% on a year earlier thanks to a doubling of sales in China. Goldman Sachs had been looking for an overall total closer to £205 million.
This prompted the broker to reiterate its 'buy' rating on the car maker, while raising the price target it set earlier in the week from 2,020p to 2,080p.
Source: TradingView (*) Past performance is not a guide to future performance
But that's about the extent of the good news for Aston Martin, on a day when border tariffs and other disruption from a no-deal Brexit looked to be looming ever larger for British car manufacturers. Sales in the UK have held up well so far despite the Brexit uncertainty, up 66% in the quarter.
Aston will be hoping that Brexit turns out to be just another bump in the road for a business that’s been around for more than 100 years and is now under the stewardship of experienced chief executive Andy Palmer.
He said today that the company was still on track to meet its full-year targets, with sales at the top end of the range of between 6,200 and 6,400 units.
For those with deep pockets, it's worth noting that the average selling price per vehicle in the quarter was £136,000. That's a 7% drop on a year earlier due to a planned shift in volumes towards the Vantage and V8-engined DB11 models.
While Dr Palmer talks positively about long-term sustainable growth as part of Aston's Second Century Plan, the stock market has so far struggled to overcome concerns in some quarters that the IPO was priced too aggressively. Shares were initially priced at between £17.50 and £22.50 in the run up to the float.
Analysts at Goldman continue to see value, having noted earlier in the week that Aston Martin was trading at a 20% discount to nearest peer Ferrari despite a superior earnings growth profile.
Their initial target price of 2,020p values Aston Martin using a projected EV/earnings multiple of 16.7x, closing the gap on Ferrari at 17.8x and compared with Tuesday's level for the UK company of 14x.
Under the leadership of Dr Palmer, they said the company boasted a new product strategy that promised a higher tempo of innovation and new model releases in order to enhance the brand and drive growth.
They expect annual growth in earnings of 31% between 2018 and 2022, driven by margin expansion from 23% to 30% over the same period.
*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.
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