Luxury car maker Aston Martin Lagonda Global Holdings (LSE: AML) hoped to stir lots of excitement when it announced last year it was going to launch an initial public flotation after 105 years. But management was shaken by the underwhelming response.
Licensed to disappoint
The initial guide price of £17.50-£22.50 a share quickly narrowed to £18.50-£20. Trading opened on 3 October at £19. But today, it trades at an all-time low of just £11.30, having lost more than a third of its value. Initial hopes of a £5bn market-cap have been hit by the reality of its current £2.59bn listing.
A chunk of those losses came today with the share price falling 17.75% on publication of its preliminary results for the year to 31 December 2018. It’s not the only big faller this week. Yet the James Bond carmaker’s numbers weren’t as bad as that would suggest.
Launch costs
Aston Martin posted a 25% rise in revenue to a record £1.1bn, with adjusted EBITDA up 20% to £247m and total volumes rising 26% to 6,441, ahead of guidance. Core car volumes rose 30% while special editions continued to be in high demand.
October’s backfiring IPO caused much of the damage. This may have been a “key milestone in the company’s history,” but it was also an expensive one, with £136m of associated costs, of which £29m was cash. This led to a reported loss before tax of £68m, against profit of £85m in 2017. The IPO wasn’t the only culprit, though. Adjusted pre-tax profit was £68m before one-off IPO costs, and that was still below 2017’s profit of £73m.
Aston Martin nevertheless reported strong volume growth across all regions with Asia-Pacific up 44% (31% in China), the Americas up 38% and the UK up 17%. The group also reduced net debt from £673m to £560m.
Buy British
CEO Dr Andy Palmer hailed “an outstanding year for Aston Martin Lagonda, delivering strong growth, with improving revenues, unit sales and adjusted profits,” and added that the UK’s only listed luxury automotive group has demonstrated its legitimacy in the global luxury market.
He reckons the combination of “outstanding high-performance cars with iconic brand-status” should allow the group to steer through “the uncertainties and disruption impacting the wider auto industry.” But markets are unconvinced.
Brexit threat
Aston Martin can’t even blame Brexit, having denied last summer that it poses a threat to the company. But it conceded Brexit could hit its ability to hire and retain skilled workers, and has set aside £30m to weather any disruption.
Mixed messages like these don’t inspire confidence in management, even if it appears to have lower exposure to tariff threats and supply disruption than high volume rivals such as Nissan, Honda and Jaguar Land Rover.
The group has reaffirmed its guidance for 2019, which is brave given the threats facing the automobile sector. Yet I’m beginning to think that negative market sentiment has been overdone. Others disagree, though.
Despite the share price slump, Aston Martin still trades at a pricey 24.1 times forecast earnings, with a relatively high price-to-revenue ratio of 2.5. That said, City analysts are forecasting 197% earnings per share growth in 2019, and another 90% in 2020. This could be a brave buy for contrarians.
