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Aston Martin Tumbles as Brexit Hurts Sales After Pricey IPO

Aston Martin Tumbles as Brexit Hurts Sales After Pricey IPO

By Christopher Jasper
February 28, 2019, 3:27 AM EST
Updated on February 28, 2019, 9:21 AM EST
British customers holding back on purchases, CEO Palmer says
Stock trails below listing valuation as investors unconvinced

Aston Martin beat its 2018 car-sales target and predicted 7,300 sales this year. Bloomberg’s Tom Lavell reports.
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Aston Martin fell the most since its controversial initial public offering last year as the luxury carmaker said some U.K. and European buyers are delaying purchases amid uncertainty around Brexit.

The stock dropped as much as 20 percent and was trading 17 percent lower at 1,134.4 pence as of 2:02 p.m. in London. That’s less than three-fifths of the 19-pound price at which the Gaydon, England-based company sold shares.

Andy PalmerPhotographer: Giulia Marchi/Bloomberg
Aston Martin is struggling to gain traction with investors after an IPO that valued its stock on a par with Italian supercar leader Ferrari NV, which in turn trades at multiples more in line with those of luxury goods companies than other automakers.

Chief Executive Officer Andy Palmer says October’s valuation was justified by plans to double output to 14,000 vehicles by 2023, yet the company won’t be able to significantly lift production until a new plant begins deliveries of the DBX SUV model next year.

Adding to concerns that the IPO was overpriced are misgivings linked to Brexit, trade tensions and slowing global auto markets.

While 30 million pounds ($40 million) of working capital set aside to deal with the worst outcomes from leaving European Union may not be needed as Prime Minister Theresa May moves toward ruling out a no deal split, warnings from Palmer about would-be buyers putting off purchases represent a new risk.

“I don’t think we’re going to lose actual sales but there is an impact,” he said in an interview. “Presidents of their own companies, for example, are asking themselves ‘do I buy in March, or do I delay?’” Though the group has been building U.S. and Asian sales, the U.K. remains its biggest market.

IPO costs pushed Aston Martin to a pretax loss of 68 million pounds in 2018 and the company said earnings before interest, tax, depreciation and amortization will be lower this half, mainly in the absence of year-earlier disposal gains.

Aston Martin beat its 2018 car-sales target, though Sanford C. Bernstein analyst Max Warburton said the company’s outlay on dealer financing suggests many vehicles are languishing in showrooms without a buyer, raising questions about real demand levels and whether its carrying too much inventory.

There’s particular concern about demand for the Vantage, Aston’s entry-level model and one on which its relying for growth ahead of the DBX launch, he said, with sales in the U.K. and Europe held back by high pricing, competition from the Porsche SE 911, and a mixed reaction to the car’s front-end styling.

That means the company’s future will turn on the DBX, which can’t come a moment too soon, Warburton said. The factory at St Athan in Wales, which will build both the SUV and a lineup of electric models, is now complete and set to enter production in the second half, though building a new car at a new plant comes with significant execution risk, according to the analyst.

Palmer reiterated a forecast for 7,300 car sales this year, the effective limit of current capacity, and was bullish about sales in China, saying Aston Martin’s range is better suited to market trends there than offerings from other luxury carmakers such as Jaguar Land Rover, which has reported a slump in demand.

“We said at the time of the IPO not to buy us if you are not going long-term,” he said. “It’s all about growth through 2023.”

(Updates with comment from analyst starting in ninth paragraph.)

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