Glamour hasn’t driven a peak valuation ahead of Wednesday’s IPO.
Price shifts lower
Earlier in the year, as chances of a listing firmed up, insiders expected the group, officially called Aston Martin Lagonda, to be offered at £4bn-£5bn, according to anonymous press briefings. That implied a £17.50-£22.50 range per share. That’s now been throttled down to £18.50-£20, capping value at the initially mooted midpoint. Bookrunners warned institutional buyers on Tuesday that offers below £19/share risked missing out, though those comments in themselves are open to interpretation. Either way, indications suggest the group will now raise £1.06bn-£1.14bn, for a total market capitalisation of £4.25bn-£4.59bn.
True, sliding valuation isn’t exactly a surprise. Management has long signalled Aston Martin was unlikely to level up with its only fully-listed listed rival, Ferrari, whether in terms of valuation, or strength of demand. The marque may enjoy global recognition, with roots going back 105 years, but with the key V8 Vantage occupying the bottom end of its typical price range, Aston Martin margins are pointing lower. The Vantage retails for under $200,000, and is expected to make up the bulk of 2018 sales. This helps explain why Aston Martin’s core earnings margin is forecast to come in at 23%, below the 23.6% achieved in 2017. That’s despite an expectation that deliveries will rise more than 20% to 6,200-6,400.
At the same time, Ferrari isn’t standing still. The maker of £1.2m LaFerraris last month threw down another gauntlet for the Aston Martin investment case by pledging to lift its own core earning margin to 38% in five years. Consensus projects a 32% Ferrari EBITDA margin in the current year. Such expectations are the key reason Aston Martin’s IPO price had to fall. Including £610m in debt, the British company will likely clinch an enterprise value (EV) including equity and debt of some £5.2bn. But assuming core earnings around £355m, based on sales forecasts and average prices, the group’s EV/EBITDA ratio, a key valuation metric, would be about 14.6 times. $26b Ferrari currently trades at 18.9 times EBITDA expected in 2018.
Whilst bid interest looks to have been sufficient to cover all shares on offer, the key risk for Wednesday’s public launch then is that initially overestimated value might equate to lower than expected demand. The largely UK-embedded group also has heightened exposure to Brexit risks, which could weigh on its shares too. Last year, Aston Martin posted its first profit since 2010. It’s IPO will partly hinge on whether the market is convinced the group can grow those earnings at a decent speed.
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