The idea of owning shares in the company that made the classic DB5 driven by James Bond in Goldfinger could be a tempted prospect. And with Aston Martin looking set to come to market probably in October, with a targeted valuation of around £5bn, you’ll soon have your chance.
But when it comes to investment, romance and glamour should always take a back seat to cold, hard, financial rationality. My colleague Rupert Hargreaves has already pointed out the scary fact that Aston Martin has actually been bankrupt seven times in its history. That’s really not the greatest of advertisements for the financial acumen of its past managers.
And looking at the long list of defunct marques of the past, you could be forgiven for thinking that petrol heads perhaps don’t make the best company managers. Whatever people like Jeremy Clarkson might rave about, the roads are actually filled with the kinds of modest sensible cars that he detests.
Heavyweight directors
To try to soothe those fears, the company has lined up a list of non-execs from outside the motor industry, including Penny Hughes (ex-Coca-Cola, RBS, Vodafone) in the chair, supported by non-executive directors who have served at Sainsbury’s, Deutsche Bank, and others.
But that still leaves the question of whether Aston Martin is set for a future of rising profits, and two concerns I have are over its future plans. As Rupert pointed out, the company is planning to more than double its production to around 9,800 cars per year by 2020, and I can’t help wondering if that might damage the exclusivity of the brand.
Then there’s the issue of electrification, which is surely going to be a big challenge for just about all of the world’s car makers. Aston Martin has chosen St Athan in Wales to be the centre of its electric car development, with its first battery-powered car, the Rapide E, expected to commence production in 2019. But right now, the electric car market is wide open and we have no idea whether well-heeled customers will take to Aston Martin’s offerings.
Financial performance
As Aston Martin comes to market, it’s able to boast a run of profits for seven consecutive quarters (hmm, one for each bankruptcy), with a post-exceptionals pre-tax profit of £42m in the first half of the current year. That’s impressive. But is that a cynical voice I hear suggesting it’s a perfect scenario for offloading shares to the public? Well, yes, it surely is.
The purpose of a flotation is absolutely not to provide new punters with a bargain. It’s to secure the maximum amount of cash possible for the current equity owners. If you were buying shares in a quoted company, do you think you’d get a better deal after a bullish spell when they’re likely to be fully valued, or during the dips that inevitably come along?
On that reckoning, I think the odds are generally stacked against buying at IPO. Look at Debenhams, for example, which came to market in 2006 only to see its shares lose a massive 90% of their value in the subsequent 12 years. Yes, the previous owners chose a very good time to sell.
Rupert is cautiously optimistic about Aston Martin. I’m perennially pessimistic about IPOs. But it’s you who has to make the choice.