In a flood of recent IPOs, the listing of luxury car firm Aston Martin has easily generated more column inches than any other.
It’s not hard to see why. The chance to own a slice of an iconic British brand that makes truly beautiful cars is hugely tempting. With Brexit only a few months away, there’s also something distinctly patriotic about the timing of its arrival on the market.
Nevertheless, a great company isn’t always a great investment, particularly if it looks too richly valued. Based on what we’ve seen over the last few days, Aston Martin would seem a case in point.
Despite the huge fanfare, the shares closed below their initial price of £19 each last Wednesday — the first day of trading for institutional investors — and continued to fall on Thursday. A quick look at recent trading might explain this reaction.
A couple of months ago, the company reported making £20.8m of pre-tax profit in the first half of the financial year. While a record for Aston Martin, this figure still looks very small relative to its market value of more than £4bn. The fact that the company has gone bust seven times in 105 years is hardly the sort of consistency investors will be looking for either.
Taking the above into account, along with the cyclical nature of the luxury car business, there’s simply too much risk for me to consider getting involved when full trading begins next week.
A better proposition
Although details are still being finalised, I suspect online investment platform provider and stockbroker AJ Bell‘sIPO will be far more successful.
The firm, named after its founder and CEO Andy Bell, is proposing a floatation on the market in either December or January. Positively, the stock will be made available to retail investors from the off, rather than just institutions, so long as the former set up an account with the firm by 15 October and have £1,000 or more to invest.
At this stage, we still don’t know what valuation the business is likely to fetch or even how big a slice of the company is to be made available to buyers. More will be known in November when the prospectus is released.
Nevertheless, if AJ Bell can repeat even half of the success of fellow low-cost broker Hargreaves Lansdown, investors could do very well indeed. Shares in Hargreaves have more than ten-bagged since 2007, allowing it to reach a market cap of over £10bn and firmly establish itself within the FTSE 100.
Based on recent trading, I think AJ Bell stands a decent chance of replicating this performance over time. Revenues rose 16% to £42m in the six months to the end of March with pre-tax profit up 24% to £14m.
Other attractions worth mentioning include the fact that Bell and asset management group Investec plan to remain as cornerstone investors. This, combined with Bell’s intention to stay fully involved with the company, is reassuring.
AJ Bell is also highly likely to pay dividends from the off with its founder hinting that it will return 65% of profits to owners with special dividends and share buybacks a distinct possibility going forwards.
No IPO will make you a millionaire overnight but, so long as AJ Bell’s valuation remains palatable, I’m minded to get involved when the stock becomes available.