Share price car crash continues for car manufacturer

Aston Martin Lagonda suffered a second dreadful day on the stock market yesterday, with an 18% fall in its share price following Wednesday’s 26% drop.

More than £900m has been wiped off the value of the luxury car manufacturer in just two days.

It continues a car crash of a first year as a public company, since it floated last October. It’s 1900p-per-share IPO raised more than £1bn and valued the Gaydon-based manufacturer at £4.33bn in one of the biggest UK IPOs of the year.

Last night, and after less than 10 months as a public company, its market value was just £1.44bn.

Investors have taken fright this week after Aston Martin revealed that not only would it miss its target of selling 10% more vehicles than last year, but that it is likely to sell fewer than it did in 2018.

Russ Mould, investment director at AJ Bell, believes Aston Martin’s experience provides some key lessons for investors looking at IPOs.

He said: “Shareholders will be thinking back to the first time James Bond ever got his hands on an Aston Martin in Goldfinger, because 007 drove the car into a brick wall when he was attempting to escape from the villain’s Swiss factory.

“There is still time for AML to redeem itself – and his Aston Martin came to Bond’s rescue many times afterwards – but for the moment investors will take three lessons from the float.

“First, valuation really, really matters. Aston’s flotation price tag of around £4bn priced in a lot of future good news and growth and left little downside protection if something, anything went wrong (which it has).

“Second, it is rarely, if ever, different this time. Aston Martin has a spotty profit and financial profit history and it has yet to prove this latest phase of its life – as a public company – will see change for the better. With the market cap now much reduced there could at least be an opportunity here if – and it remains a big if – AML can sustainably improve margins, returns on capital and cash flow.

“Finally, Aston Martin’s flop may serve to deepen any existing prejudices against companies that come out of private equity ownership when they float. Names like Debenhams already set a poor precedent, even if Hollywood Bowl, for one, has been a success, but after AML investors will be asking even more questions when the next PE exit comes to market and possibly adjusting the valuation (downward) accordingly.”