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Aston Martin: Lessons from the Ferrari IPO

Steve Clayton looks at what lessons potential Aston Martin investors can take from the Ferrari IPO.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Aston Martin’s IPO is following in Ferrari’s tyre-tracks.

The Italian marque listed on the New York Stock Exchange in 2015.

When Ferrari listed the stock at $52 per share, the share price faltered in the first five months, falling by around 38%. But the share price has rallied since to around $130 at the time of writing, although there’s no guarantees this will continue or that Aston Martin shares will do the same.

This highlights that when a company starts trading on the stock market large movements in the share price, up or down, can happen and investors can get back less than they invest. And why it’s important to focus on long-term potential when investing in a company.

Aston Martin vs Ferrari today

Aston Martin is reportedly set to be valued at up to £5bn, a fraction of Ferrari’s current £19bn value.

Both are linked with motorsport and luxury - though neither company makes cars that are just fast. Nor do they just make cars. Rather they represent an exclusive lifestyle, luxurious and affluent, in which owners move swiftly in vehicles that project elegance and power. An authority established on the track.

But there are big differences between the two companies that affect the value of each.

Ferrari produced 8,400 cars last year, and forecasts 9,000 vehicle sales for 2018. While Aston Martin sold just under 5,100 vehicles last year, some way below its peak of 7,300 in 2007. Although new models are now expected to see Aston Martin regain those former peak production levels next year.

And Ferrari is pushing the price of its cars ever higher. Ferrari doesn’t look to sell to the rich, it aims to sell to the very, very rich.

The average price of a new Ferrari is well above that of an Aston Martin. And that matters. The cost of bringing a new model to market is a big commitment. The return on investment is likely to be greater for a company that can sell more, at higher prices. Last year, Ferrari generated total revenues of €292k for each car it sold, whilst the equivalent figure for Aston Martin was €190k.

The future

Aston Martin has big plans to grow. An engine supply deal with Mercedes-AMG has secured them access to high technology power and electronics options, in return for a 5% stake in the business. They’re experimenting with licencing their name for speed boats, luxury apartments in Miami and even a submersible. A stock market listing will give the company a new source of money to back development.

The challenge is to raise production and prices, and push operating margins up towards the 20%+ levels that Ferrari reported last year. Are there even enough super-rich people to fuel the growth ambitions of both companies?

One shadow on the horizon could be autonomous vehicles, which could rather compromise the appeal of sports cars.

Ferrari is expected to launch an SUV in late 2019 or early 2020, Aston Martin’s own SUV is expected to enter production next year, whilst the group is reported to be set to launch electric vehicles under the historic Lagonda brand.

Both marques plan hybrid models. The change in the powertrain from gasoline to electric power poses challenges for both companies, forcing them to enter a world of unfamiliar engineering, where their niche positioning could leave them financially out-gunned.

These are exciting times for Aston Martin, too much of its existence has seen it struggling under unstable ownership and suffering volatile financial performance. A listing could finally give it the chance to reach the brand’s full potential, but it will really have to get motoring if it is to catch up with its Italian rival.

Read more on the Aston martin IPO

Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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