Aston Martin’s Plan To Match Ferrari Hits A Skid Patch.
“While earnings were not far from expected levels, they also confirmed worries about weak operating leverage and excessively tight liquidity,”
British luxury sports carmaker Aston Martin’s shares were floated on the stock market in October 2018 and investors were urged to pile in because this was another Ferrari in the making.
Those claims look thin now, and the story is all in the share price numbers.
Aston Martin shares were floated at 1,900 British pence, and have since lost about 42% of their value, sliding to about 1,099 pence Tuesday. Italian legendary sports car manufacturer Ferrari was floated on the stock market about 3 years ago at a price of 43 euros a share, and after a brief spell of weakness has powered ahead. The shares peaked at 126 euros last June, slipped to 84 euros in December, and are now moving higher again at close to 117 euros a share. That’s getting close to 3 times the initial offering price.
Bernstein Research analyst Max Warburton has been following Aston Martin’s attempt to be viewed as a luxury brand like Ferrari and Hermes.
Warburton said Ferrari has much a higher average price point than Aston Martin – 274,000 euros vs 175,000 euros ($311,000 vs $199,000), sells more cars – 9,251 vs 6,440 in 2018 – and is much more profitable.
Ferrari’s latest GAAP (generally accepted accounting principles) profit margin of 18% compares with Aston Martin’s 0%.
Warburton said Ferrari has more brand power than Aston Martin because of its superior sporting heritage, and classic prices are stronger.
“Ferrari has a much richer motorsport heritage. It has a much greater number of historically significant cars that sell in greater quantities and much higher prices. The highest price yet achieved by a Ferrari is reputedly $70 million. The greatest Aston sold for ‘only’ $22.5 million. The total value of all classic Ferraris now totals 13.5 billion euros ($15.3 billion, while Aston Martin totals only 2.5 billion euros ($2.8 billion), an interesting reflection of their respective equity market capitalizations,” Warburton said.
Ferraris in demand
“In the new car market, Ferrari cars are in greater demand, have waiting lists and sell at full price. Modern used car prices reflect this, with Ferraris having better residuals than Astons,” Warburton said.
Investment researcher Jefferies said Aston Martin management must address the problem of insufficient liquidity, but wasn’t sure how this could be done without taking on more debt or new equity.
“While earnings were not far from expected levels, they also confirmed worries about weak operating leverage and excessively tight liquidity,” Jefferies analyst Philippe Houchois said in a report entitled “On Governance Probation”.
Jefferies rates Aston Martin shares “underperform” and has a price target of 1,050 pence, pending progress on governance issues.
Bernstein Research’s Warburton said Ferrari is able to sell more high priced, low production models like the LaFerrari and 812 Monza, although the Aston Martin Valkyrie, due in the 4th quarter of 2019, might have similar strength. Warburton doesn’t see much likelihood of either stock price accelerating any time soon.
“But Ferrari has vastly better economics, is better placed to improve mix and has a much lower risk of an earnings disappointment than Aston Martin in 2019/20,” Warburton said.