Aston Martin share crash shows valuing a dream takes adjustment | Nils Pratley


Aston Martin Lagonda has just enjoyed an “outstanding” year, said chief executive Andy Palmer, and the mere act of arriving on the London Stock Exchange “demonstrated our legitimacy in the global luxury market”.

Tell it to the poor buyers of the shares at flotation. What Palmer didn’t mention is that Aston Martin’s stock has been stuck in reverse gear from the moment the flag dropped last October.

Listed at £19, a price that was itself a cut from the £22.50 the private equity backers had apparently sought, the shares closed on Thursday at £10.80, a fall of a fifth of the price. Put another way, the buyers at float are sitting on a paper loss of 43%. They have just been reminded why, on the whole, you shouldn’t buy if private equity is selling.

Palmer is on firmer ground in arguing that Aston Martin has done roughly what it said it would do as a public company. Official profit forecasts are intact after five months, which, if you’re generous, could be seen as a mini-triumph given the state of the global car industry.

Yet, for outsiders, it remains a challenge to know which needle on the dashboard to watch. The word “adjusted” littered the results statement, and not just because of the £136m (really) of costs related to the float. One can see that revenues improved 25% but this did not translate into better profit margins. Indeed, what the company calls “normalised adjusted diluted earnings per share” went backwards, as did cashflow.

Next year’s big event is the launch of an SUV, and it may be only fair to reserve judgment until that hurdle has been cleared. The company’s pitch is that can increase production from 6,441 vehicles last year to 14,000 in “the medium term” as new models are developed.

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All the same, it’s alarming to see Canaccord Genuity’s analysts arguing already that more capital may be required to fund this massive ramp-up in production.

Palmer could help himself by being clearer on how it’s supposed to happen, and where all these buyers of expensive cars are meant to live. Even after the slump in the share price, Aston Martin is still valued at a revved-up 39 times earnings on the company’s preferred yardstick.

Shareholders can’t claim they weren’t warned. “We don’t make cars, we make dreams,” Palmer told them at float. Valuing a dream ain’t easy. Adjusted normalised dreams are even trickier.

Norwegians are just being open-minded and noncommittal

Terrific news, eh? The Norwegians reckon the UK is a buy whatever the Brexit outcome. They want to invest more of their oil wealth here rather than flee for the fjords.

“We foresee that over time our investments in the UK will increase,” the fund’s chief executive, Yngve Slyngstad, said this week. Cue relief, delight and even triumphalism among excitable Brexiters who should know better (ie Jacob Rees-Mogg).

Calm down. The Norwegian fund’s intentions are not remarkable. If you are managing $1tn (£753bn) of assets by investing globally, it would be perverse to ignore the world’s fifth largest economy and Europe’s biggest financial centre.

And, given that Slyngstad says the fund takes a 30-year view, it would be even stranger to form firm conclusions about the effect of Brexit before the UK has left the European Union.

The question isn’t simply: will Brexit make the UK poorer? but what’s in the price? Is sterling going up, down or sideways immediately after Brexit? Until there is clarity, sticking to the current approach is merely the default position for a big, slow-moving fund.

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The dividend yield on the FTSE 100 index is 4.48%, which is juicy by historical standards. Dumping UK plc at current prices would be bold. There are other complications. The Norwegians get a slice of UK banking by owning HSBC, but a lot more Asian exposure. So are they betting on the UK or are they investing in multinationals that happen to be listed in London? Surely the latter.

At the same time, we are invited to be encouraged that the Norwegians want to add to their UK property holdings, which include a slug of Regent Street. Well, yes, UK property is a large investment category that will feature on the radar of most sovereign wealth funds, but a broad plan to spend in coming decades doesn’t tell us much about the Norwegian view of current valuations. Are they buyers now, or only if a no-deal Brexit clobbers valuations?

The mistake is to view everything though today’s Brexit lens. It’s not that simple. Fund managers watch events and prices. The Norwegians are being open-minded and noncommittal. It’s what you’d expect.



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