Aston Martin seeks RM28b valuation

Maker of luxury sports cars confirms plans to build a hybrid supercar code-named ‘003’

By BLOOMBERG

MILAN • Aston Martin is seeking a valuation that it expects will top its only listed rival, Ferrari NV. Analysts on the other hand? They’re not so sure.

The maker of luxury sports cars made famous in the James Bond movies filed details for an initial public offering in London yesterday that would value the UK company at up to £5.07 billion (RM27.74 billion).

That would surpass the multiples of Ferrari, which makes more profit and churns out oodles of cash.

The valuation is “a big vote of confidence”, CEO Andy Palmer said in an interview, noting that the company was worth less than one-tenth its current value when the turnaround started. “Most important from my point of view is that we are only halfway down the runway. We renewed the existing portfolio and we have a lot in front of us.”

The company’s first SUV is coming out in 2020, giving it access to the Chinese market and a head start over Ferrari, which this week postponed its Purosangue SUV to 2022, Palmer said. Luxury carmakers are crowding into SUVs to capture high profit margins that will fund initiatives such as electrification.

Based on its first-half (1H) earnings, Aston Martin could be valued at more than 24 times adjusted earnings before interest. tax, depreciation and amortisation (Ebitda), a calculation that doesn’t take into account Aston Martin’s debt and research and development (R&D) spending — which would push the multiple higher.

Ferrari trades at about 20.5 times its expected adjusted Ebitda for 2018, based on Bloomberg data — a figure that is closer to luxury good companies than to carmakers.

Analysts, however, are sceptical that Aston Martin’s business can command a valuation like Ferrari’s.

“We love the brand. We respect the management team. But we simply can’t see how a Ferrari multiple looks realistic,” Max Warburton, an analyst at Sanford C Bernstein & Co, said in a research note.

“They are selling a business that is loss-making on a US Generally Accepted Accounting Principles basis, with a weak profitability record and a fragile balance sheet, selling cars at much lower price points, to a much less dedicated audience.”

The UK carmaker will sell a 25% stake at between £17.50 and £22.50 per share, it said in a statement. Trading will begin on the London Stock Exchange after an Oct 3 pricing, with unconditional trading starting Oct 8.

Much will depend on whether Aston Martin can meet its ambitious medium-term targets, according to Evercore ISI analyst Arndt Ellinghorst. He estimates that at the mid-point of the range, Aston Martin’s targeted enterprise value is about 11 times 2020 Ebitda. The newly launched DB11 and Vantage have been well received and can help spur significant sales growth.

But R&D costs are being capitalised at about 95% at Aston Martin, versus 25% at Ferrari — which is elevating reported margins and earnings in the near term. Both revenue growth and profitability will be critical in coming years, he said.

“Whether Aston Martin can execute remains to be seen and investors, who have had the opportunity to speak to management in recent weeks, will likely be better placed to judge than us at this stage,” Ellinghorst said in a note.

Even at the bottom of the targeted range, which would value the company at about £4.02 billion, Aston Martin’s owners will be making multiples on their investment. In 2012, when London-based Investindustrial Advisors Ltd bought a 37.5% stake, the company was valued at about £420 million, Palmer said. Daimler AG will convert its holding of about 4.9% to ordinary shares.

Aston Martin shareholders are cashing out months before the UK leaves the European Union. While the UK’s post- Brexit automotive industry is one of the sectors most exposed to potential trade hurdles, the company is “well insulated” in the case talks break down and Britain leaves the bloc without a trade deal, Palmer said.

Aston Martin posted a 24% adjusted Ebitda margin in the 1H as it made £104 million on £445 million in sales. The company is aiming to boost that figure to above 30% in the medium term.

Ferrari’s profit on that basis was one billion last year, with a 30% margin. The Italian company said this week it plans to increase that figure to 38% by 2022. That would put it on par with luxury goods maker Hermes International.

Meanwhile, Aston Martin has confirmed plans to build a hybrid supercar code-named “003”.

It’s the third high-performance, mid-engine car the private equity- and Kuwaitiowned company will have built in recent years, following the US$2.6 million (RM10.76 million) Aston Martin Valkyrie and Valkyrie AMR Pro (called “001” and “002” respectively) that debuted in 2017.

Information on the latest British beast remains scant, though company executives have promised a road-legal vehicle built around “a lightweight structure” and powered by a turbocharged hybrid engine.

They say the car will be fully homologated and available in all markets, in both left- and right-hand driver setups — important because the emphasis will be on livable daily driving, rather than track-only use, as with the Valkyrie models. It’ll even have room for a small amount of luggage.

“It was vital to us that Valkyrie would create a legacy,” Palmer said. “The Project 003… is our next step into a dynamic and exacting arena.”

The 003 will come to market in late 2021. The first production vehicles will be seen during the 2H of 2019 — “not necessarily at an auto show”, the spokeswoman said. Only 500 of the coupes will be sold worldwide.