Sir Richard Branson once said the quickest way to a million is to start with a billion and launch an airline. Perhaps the same could be said about a luxury car maker.
Rescue
Billionaire Formula 1 owner Lawrence Stroll will presumably be hoping not, after stepping in to save the ailing Aston Martin Lagonda (LSE: AML). A consortium led by Stroll is to invest £182m in the firm, and the F1 team he co-owns, Racing Point Formula 1, will be renamed Aston Martin in 2021. If the car maker lasts that long, presumably.
Further shares will be offered to existing shareholders, to create a full rescue package to the tune of £500m.
Stroll and his consortium will own 20% of the company. And as a result of the cash injection, he will take over as executive chair. Current chair Penny Hughes will step down. I’m not a shareholder, but I don’t think I’d be too happy with that arrangement myself.
I’ve nothing against Lawrence Stroll and see no reason why he shouldn’t be a first class company leader, but I don’t like combining the chair with a top executive position.
Special situation
The board does recognise that as a problem, saying that “in this special situation, it will continue not to be fully compliant with the UK Corporate Governance Code with respect to board composition.” The firm will consider the board composition over time.
I’ve read through the list of key priorities for Aston Martin’s turnaround plans. And without wanting to sound too cynical, they appear to boil down to: sell more cars, get more cash in, spend less. Who’d have thought?
Specifically, the company is pinning its hopes on the coming launch of the DBX in the second quarter, the relaunch of the Vantage, and the start of Valkyrie deliveries.
I’m pleased that Aston Martin will be saved (for now, at least), that a famed British marque will survive, and that jobs will be preserved and all that. But Aston Martin has been a disaster for investors.
Worth buying?
At least the market seems upbeat now, with the shares leaping almost 30% in Friday morning trading. What’s my strategy now? Well, I’m turning again to perhaps the most important tool in an investor’s workshop, my trusty bargepole.
When Aston Martin floated in October 2018, I saw it as a disaster waiting to happen. The history of luxury car development is strewn with failures. And Aston Martin itself had previously gone bust seven times in its century-long history.
Couple that with the risks of buying at IPO, and there was no way I’d have gone near the shares. And I still won’t.
Bad starts
I can point to a long line of IPOs, most of which turned out to be bad investments. I want to buy shares when the free market has had the chance to weigh up a company’s prospects and set the share price accordingly.
It might sound like I’m talking from hindsight, so I’ll offer my opinion now on the next IPOs to hit the London market. I’ve no idea who or what they’ll be, but in my view the majority of them will be bad investments.
Meanwhile, Aston Martin shares are still down 75% since IPO.