Financial market research and analysis

After 105 years of operation, luxury British car maker Aston Martin will list on the London stock exchange on Wednesday 3rd October. CFDs on the shares will be available from LCG.

The first public listing of a British carmaker in decades has the kind of ‘dinner party’ appeal that few IPOs share. Aston Martin is one of the most hotly anticipated IPO’s this year.

Shares are expected to be priced between £18.50 - £20.00 and there is reportedly enough bid interest to cover all the shares sold at this level. Based on 57 million shares being sold and a free float of 25%, the listing would give Aston Martin a valuation of £4.2 billion- £4.5 billion. A valuation at the upper end could see Aston Martin join the FTSE 100, the first carmaker on the blue-chip index since Jaguar.

Why the shares could do well
The management team under chief executive Andy Palmer has seen Aston Martin (pardon the pun) turn a corner. The British carmaker is in rude financial health. In 2017 sales grew 58%, with revenues over £840 million and pre-tax profits of £180 million.
Foreign demand is on the up with 10 new or refurbished show rooms planned for China alone. Funds from the IPO will aid Aston Martin’s growth prospects with plans to increase production by opening a second factory in Glamorgan. Planned unit sales next year is 7000 which should double to 14,000 over the medium-term.
The transition towards electric has been a standout success. The £2.4 million Valkyrie hybrid model sold out and all Aston Martin models will eventually be available as a hybrid . The combination of a household name with right investment in technology could one day see Aston Martin challenging Tesla’s spot as the go to premium EV.

What are the risks?
Aston Martin has had seven bankruptcies in its long history, but we would downplay the risk of number eight.

Increasing production after a long history in a niche low production part of the market is probably the biggest risk. More Aston Martin’s on the road, including perhaps newer cheaper models could dilute the exclusivity of the brand. There are only so many billionaires and British secret agents.
The timing of the IPO presents some risk. Brexit is just months away and barely a day goes by without a car manufacturer warning over the risk Brexit presents to its supply chain. Volvo recently pulled its planned IPO owing to increased trade tensions.

For what it is worth, CEO Andy Palmer has said Aston Martin would “probably benefit from a weaker pound” in the case of a No Deal Brexit. It’s fair to assume the average Aston Martin buyer is less price-sensitive than your average driver. We think increased trade barriers are unlikely to influence a driver’s decision to buy an Aston Martin. Lost wealth through a downturn in the housing or stock market would pose a much bigger risk to Aston Martin than more tariffs.

General health of Europe’s IPO scene
Year-to-date (YTD) European IPO deal volumes and proceeds are down substantially compared to 2017. The number of IPO’s declined after the February market correction and never improved. The sluggish IPO scene is understandable amid political tensions and trade issues. Contrary to the number of listings, first day ‘pops’ and post-listing performance have mostly exceeded expectations. According to EY, average first day returns for EMEA IPO’S is up 12% y/y and current performance YTD post IPO increased by 25% on average. Overall the pattern seems to be that IPO market activity is sluggish compared to last year but investor appetite for those that make it to IPO is strong.

Conclusion
With two book runners saying that investors who offer below £19 per share risk missing out, the listing is shaping up to be a success. We think the iconic status of this 100-year old British motoring bra