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 IPO in London Thursday that would value the U.K. company at up to 5.07 billion pounds ($6.7 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,” Chief Executive Officer 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 sport utility vehicles to capture high profit margins that will fund initiatives such as electrification.
Based on its first-half earnings, Aston Martin could be valued at more than 24 times adjusted Ebitda, a calculation that doesn’t take into account Aston Martin’s debt and 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 skeptical 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 U.S. GAAP 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 U.K. carmaker will sell a 25 percent stake at between 17.50 pounds and 22.50 pounds 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 capitalized at about 95 percent at Aston Martin, versus 25 percent 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 pounds, Aston Martin’s owners will be making multiples on their investment. In 2012, when London-based Investindustrial Advisors Ltd. bought a 37.5 percent stake, the company was valued at about 420 million pounds, Palmer said. Daimler AG will convert its holding of about 4.9 percent to ordinary shares.
Aston Martin shareholders are cashing out months before the U.K. leaves the European Union. While the U.K.’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 percent adjusted Ebitda margin in the first half as it made £104 million on 445 million pounds in sales. The company is aiming to boost that figure to above 30 percent in the medium term.
Ferrari’s profit on that basis was 1 billion last year, with a 30 percent margin. The Italian company said this week it plans to increase that figure to 38 percent by 2022. That would put it on par with luxury goods maker Hermes International.