My interest in Aston Martin’s forthcoming IPO began around 18 months ago when it was obvious the car maker was on the runway to a stock market float – fawning interviews / puff pieces (both ongoing), but with the company going all coy on me. Presumably, I was not deemed to be the one to scoop the story. Interestingly enough, you will be hard pressed to find any article anywhere even questioning the merits of this particular deal – it is all James Bond the DB5.
This summer though, the inevitable has been wheeled out, with an estimated £5bn price tag. One’s initial reaction is good luck and well done. But the reality here is that this is a £5bn valuation which is some £4bn overvalued.
We are looking at a company about to trade on 10 times revenues, and a price / earnings ratio of more than 100. Ferrari for instance, is riding around a prospective number of 20 for 2020.
There are several reasons for the Emperor’s New Clothes syndrome applying here at Aston Martin. Firstly, we are 10 years into the world’s greatest bull market / asset bubble. Even the Sinclair C5 or Robin Reliant could have managed bloated valuations given such a straight line of good economic fortune.
Aston Martin has historically oscillated between profit and loss and it there is no reason to assume this will not happen in the future. After all, a £20.8m profit for the first half of this year is simply too fine a margin should the market stall.
And even if you say the national icon will make £50m for the year, how does this add up to £5bn? It does not. We are at an economic bubble peak, and even though Aston Martin is a National Treasure, from an investment perspective the rating is higher than Ben Nevis.
Something to remember is that quality of the type delivered by luxury car companies is not scalable, and even if it is, the scarcity value is lost. God forbid there is an Aston Martin hatchback, motor bike or brand dilution with holidays, hotels, and other bric a brac. Much is also made of the opportunity of going electric, but there is not even visibility in this area for Tesla. Indeed, electric could kill the fossil fuel car peddlers, we simply do not know.
Of course, the IPO has a Best of British feel-good factor, and brokers in the City need something to help recoup bonuses after unquestioningly accepting the Trojan Horse EU regulation of MiFid II and ESMA.
Unfortunately, Aston Martin is not a tech company where profits do not matter. It is a nuts and bolts business which has to have a down to the ground rating. In this case £1bn would be more enough to start, with or without James Bond at the wheel. One might buy some shares to put on the mantelpiece, but if pushed, buying the car still seems more attractive than buying the stock. Ferrari nearly halved initially after coming to market – before soaring. Aston Martin could also prove to be a roller coaster.