Aston Martin (LSE: AML) was floated on the stock market in October 2018. The shares were priced at £19 in the initial public offering (IPO). Today, little more than two years later, they’re trading at 65p. Will the Aston Martin share price ever go back up to £19? Heck, even £1.90 would triple your money!
British style and derring-do
When the company announced its intention to float, it created quite a stir. It would be the first British carmaker to IPO in more than three decades. And what a carmaker! A glamorous century-old name. From chaps haring round the iconic banked bends of Brooklands race track to James Bond’s long association with the marque, we’re talking a heritage of quintessential British style and derring-do.
At the top end of the initial indicative IPO price range of between £17.50 and £22.50 a share, Aston Martin would have been valued at £5.1bn and had a place in the elite FTSE 100 index. What could be more fitting? And who wouldn’t be proud to own a few shares in the illustrious name?
Hang on Henry
Putting aside the romance, the investment case was somewhat less compelling. For one thing, management’s growth targets looked on the aggressive side. For another, the balance sheet and liquidity didn’t seem great for a company with a backstory of historical losses, poor free cash flow, and seven bankruptcies.
The IPO allowed some existing investors an exit, or partial exit, but raised no new cash for the company. The balance sheet in the prospectus showed debt of £887m versus cash of £71m. The latter looked a bit skimpy for management’s ambitious growth plans.
Finally, there was the question of valuation. Even though the £19 IPO price was at the lower end of the initial indicative range, and the shares fell further when they began trading, Aston Martin was still on a premium rating relative to Ferrari — a company with superior profitability and a stronger balance sheet.
The collapse of the Aston Martin share price
In an article a little over a year after the IPO, I suggested dumping Aston Martin shares at a price of 557p.
The company was not selling as many cars as management expected, cash generation was poor, and net debt/EBITDA had reached an eye-watering 5.5 times. As such, an equity fundraising with significant dilution for shareholders looked very much on the cards.
Can the Aston Martin share price return to £19?
Aston Martin had 228m shares in issue in 2018. Today, there are 1.82bn. At £19 a share, its market capitalisation would be £35bn. It would rank at number 11 in the FTSE 100. In short, there’s not a cat in hell’s chance the Aston Martin share price will ever return to £19. And with considerable further dilution in the pipeline, I’m not even sure £1.90 is a realistic target.
David Brown, owner of the company through the legendary 1948–1967 ‘DB’ series of cars, once described Aston Martin as an “expensive hobby”. Will it be the same for billionaire Lawrence Stroll, who led the consortium that rescued the company earlier this year?
I don’t know. But I do know I can’t afford to treat any investment as an expensive hobby. As such, I’m avoiding the stock, and leaving it to folk who can spare big money to pursue their passions!
