Shares in Aston Martin (LSE: AML) had, by lunchtime today, surged higher by 19% to trade at near 600p. The reason for the flying start was a rumour that Lawrence Stroll, the billionaire owner of the Racing Point Formula 1 team, was planning to take a significant stake in the firm.
Motoring publication Autocar and motorsport website RacingFans.net got the scoop but have not named their source. Mr Stroll has, so far, been unavailable for comment.
Not long after Aston Martin’s IPO in October 2018, its shares traded as high as 1,600p each. In November this year, they briefly dipped under 400p, but have since recovered to trade around 500p.
Mr Stroll is said to think the price slump after the IPO makes Aston Martin a bargain, and has a history of snapping up and turning around the fortunes of struggling carmakers.
A consortium led by him bought a struggling racing team, rebranded it as Racing Point, and invested heavily. And Racing Point’s F1 cars could be styled in Aston Martin’s British racing green colours, says RaceFans.net, if he takes a controlling stake.
Perhaps Aston Martin would also benefit from a closer association with F1, like Ferrari and Mercedes do, by integrating itself with Racing Point. After all, In December 2018, a new Aston engineering centre appeared, close to the Racing Point factory, in Silverstone.
Bumps in the road
Let’s not get ahead of ourselves though. The man who is supposedly considering the takeover is silent on the subject, and Aston Martin actually built a factory close to the Silverstone race track so it can test its new models out.
Aston Martin already sponsors the Red Bull Racing F1 team. Racing Point cars use Mercedes-AMG engines from Daimler, which own a stake in Aston Martin and supplies engines for its vehicles. Any tie-ups between Aston Martin and Racing Point are therefore going to be complicated.
I was not convinced that shares in Aston Martin were cheap when they were sitting at 405p. As of now, the only thing that has materially changed for Aston since I looked at it last month, is that the DBX, the marque’s first SUV, has been shown off to the public at motor shows.
There is quite a lot riding on the success of this new model. Aston Martin wants to produce 14,000 cars a year, which is quite an increase on the 6,411 it made in 2018. To hit the higher number, the DBX is expected to contribute around 5,000 units, with growth in other model sales providing the rest.
Development of the DBX was part-financed by a £120m bond offering (the rest went to pay off debts), which also unlocks an additional £100m if orders for the model surpass 1,400. Since the company made a loss in the last quarter, this will be needed.
The DBX has actually been well received. Still, production will not start until the second quarter of next year, and no order updates have been issued.
If Mr Stroll ends up buying a controlling stake, then the game has changed, and I will need to consider his plans for the company. As things stand, I am still not tempted to buy Aston, the shares are more expensive now, and my concerns remain the same.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.