AML - Stock Market Listing

[hornbaek]

Market in general is poor, so AML which is not yet out of the "stabilising period" if suffering as a combination of poor markets and low liquidity. This is not going to change until some news will come our around the next reporting period. Considering how the markets have developed since the flotation, the banks were lucky gettig AML off the ground. One day later and it wouldn't have happened.

[Jon39]

Thank you hornbaek, for your earlier detailed explanation, about the present IPO process.

I applied in scores of new issues during the 1980s, and did not know about the underwriting change to the system.
In those days there were a few auction type issues, where you could make multiple applications at different prices, but most were fixed price offers, where the issue price was known before any applications were posted.

It appears to me that the underwriting risk has now been eliminated, but replaced by the 'stabilisation' system, so who carries the risk involved there? In the initial days of this AML IPO, the stabilisation would have involved purchases, so who takes that short-term book loss?

With my equity investing, I always consider the basic fundamentals, so decided for AML the P/E ratio was far too high for me, and therefore did not make an application for shares. Therefore, what has occurred to the market valuation, is what I thought would happen.

The often mentioned comparison to Ferrari by AP, has now encouraged me to look at their 3 year results. Quite a surprise to see remarkable growth in both Rev. and Pre-tax. If AML can match those percentages in 2018/19/20, all will be well. Hopefully by not continuing with regular assistance from their R & D accounting.

Edited by Jon39 on Tuesday 9th October 08:09

[RL17]

A bit of a bounce today -markets still slightly down



IPO made Alex cartoon on front of business section

https://www.telegraph.co.uk/business/alex/

[IanV12VSRs]

RL17 said:

A bit of a bounce today -markets still slightly down



IPO made Alex cartoon on front of business section

https://www.telegraph.co.uk/business/alex/

Harsh but very fair

[Jon39]

Shares are now changing hands at 1,500p, therefore the IPO initial investors are now looking at 21% (book) losses.

Here are a few figures which you may like to consider.
What do you think a fair valuation (share price) might be ?

Profit attributable to the Company owners
2017 first half year = £15.6m.
2017 full year = £74.2m.
2018 first half year = £8.7m.

Price ÷ Earnings Ratio (historic, based on full year 2017)
Issue Price 1900p = 55.4.
At 1500p = 43.7.

Company Market Value
At 1900p = £4.3 billion
At 1500p = £3.4 billion

There has not been a Company forecast for the 2018 profits, but I think all that we know, is that the first half is lower than in 2017, and that there has been mention of about £50 million costs for the IPO.

[Graze01]

Jon

What explains the huge rise in profit second half of 2017 and the the halving of profit first half 2017 vs first half 2018?

Was second half 2018 when the treated investment in new plant Etc as profit?

Graeme

[Jon39]

Graze01 said:

Jon

What explains the huge rise in profit second half of 2017 and the halving of profit first half 2017 vs first half 2018?

Was second half 2018 when they treated investment in new plant Etc as profit?

Graeme

There are two documents Graeme, which if read more thoroughly than I have done, probably provide the answers to your two questions.

1) Full year 2017 Report and Accounts (on the Companies House website - Aston Martin Holdings (UK) Ltd)
2) The IPO Registration document, including the first half 2018 results (on the Aston Martin website IPO page).
There are future 3 year car production estimates in that document, which will be interesting to remember.

My ( possibly cynical) guess for your first question, is that as much business as possible was being transacted in the second half 2017, in preparation for the IPO. Were there quite a few special models being delivered and announced (deposit payments - would they be included in revenue?), during the second half of 2017?

For your second question, could it have perhaps mainly been due to reduced Vantage activity in the first half of 2018, before the model changeover?

[JB65]

Jon39 said:

Graze01 said:

Jon

What explains the huge rise in profit second half of 2017 and the halving of profit first half 2017 vs first half 2018?

Was second half 2018 when they treated investment in new plant Etc as profit?

Graeme

There are two documents Graeme, which if read more thoroughly than I have done, probably provide the answers to your two questions.

1) Full year 2017 Report and Accounts (on the Companies House website - Aston Martin Holdings (UK) Ltd)
2) The IPO Registration document, including the first half 2018 results (on the Aston Martin website IPO page).
There are future 3 year car production estimates in that document, which will be interesting to remember.

My ( possibly cynical) guess for your first question, is that as much business as possible was being transacted in the second half 2017, in preparation for the IPO. Were there quite a few special models being delivered and announced (deposit payments - would they be included in revenue?), during the second half of 2017?

For your second question, could it have perhaps mainly been due to reduced Vantage activity in the first half of 2018, before the model changeover?

Wouldn't be surprised if this would have included some kind of DB11 and Vantage pre ordering from dealers and/or customers (mandatory or not)
stock currently trading 19% below introduction ...

Edited by JB65 on Thursday 11th October 15:16

[anonymous-user]

There are too many unknowns for me to get any ideas for valuation moving forwards.

Retail investors have been hit, but I would have thought institutional investors would have got a healthy discount on the IPO price before trading began and are still sitting on net gains.

[Jon39]

soofsayer said:

... Retail investors have been hit, but I would have thought institutional investors would have got a healthy discount on the IPO price before trading began and are still sitting on net gains.

I thought that everyone applying in an IPO paid the same price ie. in this case, £19 for 25% of the Company.
Are you saying individuals paid £19, but unaware to them, institutions had discounts of about 20%?

Surely not. That is not fair without being disclosed. Is it amongst the small print of the Prospectus?

[RobDown]

soofsayer said:

There are too many unknowns for me to get any ideas for valuation moving forwards.

Retail investors have been hit, but I would have thought institutional investors would have got a healthy discount on the IPO price before trading began and are still sitting on net gains.

Unfortunately it doesn’t work like that in an IPO. Sometimes Retail investors get a discount (think of the big privatisations of the 80s) or what the government had once planned for Lloyds. But not the other way around

In a secondary placement (eg govt selling a stake in RBS) institutions will get a small discount to market price (maybe 3%), but that’s a slightly different transaction.

[RobDown]

BTW - I’d flag up that Ferrari shares are down 17% over the last week. And TATA a lot more. Not a good time to be in the car space

[Jon39]

RobDown said:

BTW - I’d flag up that Ferrari shares are down 17% over the last week. And TATA a lot more. Not a good time to be in the car space

Have you looked at Ferrari's last 3 year revenue and profit growth, Rob?
I was surprised.

I think they are now even saying their self imposed production limit, is fully sold for a year or so ahead.
That of course provides scope for an uplift to margins, if they wanted to.
An enviable position to be in, but whether their current PE level can be sustained, I don't know.

[hornbaek]

RobDown said:

soofsayer said:

There are too many unknowns for me to get any ideas for valuation moving forwards.

Retail investors have been hit, but I would have thought institutional investors would have got a healthy discount on the IPO price before trading began and are still sitting on net gains.

Unfortunately it doesn’t work like that in an IPO. Sometimes Retail investors get a discount (think of the big privatisations of the 80s) or what the government had once planned for Lloyds. But not the other way around

In a secondary placement (eg govt selling a stake in RBS) institutions will get a small discount to market price (maybe 3%), but that’s a slightly different transaction.

Indeed. In an IPO the book building does not allow for any discount. The only discount is if selling shareholders have deliberately set a price at the lower end of the range and being conscious about the fact that they are leaving a bit on the table for new investors. It’s only if the book is significantly oversubscribed that the initial trading will prove to be advantageous for institutional investors as they have received some but not all their shares in the book building and hence go into the market to get their full allocation. That obviously drives up the price. This was clearly not the case with AML which was very lucky to get this listing away.

[hornbaek]

RobDown said:

soofsayer said:

There are too many unknowns for me to get any ideas for valuation moving forwards.

Retail investors have been hit, but I would have thought institutional investors would have got a healthy discount on the IPO price before trading began and are still sitting on net gains.

Unfortunately it doesn’t work like that in an IPO. Sometimes Retail investors get a discount (think of the big privatisations of the 80s) or what the government had once planned for Lloyds. But not the other way around

In a secondary placement (eg govt selling a stake in RBS) institutions will get a small discount to market price (maybe 3%), but that’s a slightly different transaction.

Indeed. In an IPO the book building does not allow for any discount. The only discount is if selling shareholders have deliberately set a price at the lower end of the range and being conscious about the fact that they are leaving a bit on the table for new investors. It’s only if the book is significantly oversubscribed that the initial trading will prove to be advantageous for institutional investors as they have received some but not all their shares in the book building and hence go into the market to get their full allocation. That obviously drives up the price. This was clearly not the case with AML which was very lucky to get this listing away.

[Jon39]

The Sunday Telegraph today contains an article about AML employees who bought shares in the recent IPO.

'Workers were invited to buy ­between £250 and £10,000 of shares in Aston, and the company said 40pc of 2,200 shop floor staff put their own cash in.'

There were a few clues posted on here some time ago about; the pre-IPO hype; high valuation; R&D moved to the balance sheet; initial historic PE ratio 55.4.

Unfortunately, 880 people must have regarded an invitation from their employer to be more enticing, than a few warning comments on this forum.

[RobDown]

Well you’re a ray of sunshine today Jon aren’t you?

[RobDown]

Maybe the employees and hundreds of institutional investors (who are more than capable of doing valuations more sophisticated than a current year PE) just have more faith in the company than you Jon?

Just wondering aloud

[Jon39]

Rob.

I just feel an amount of disappointment for the employees, who perhaps were making their very first equity investment, and have now experienced a significant paper loss. I know that a bad first experience, can put some people off investment for good.

RobDown said:

Maybe the employees and hundreds of institutional investors (who are more than capable of doing valuations more sophisticated than a current year PE) just have more faith in the company than you Jon?

Just wondering aloud

( Think you meant previous year PE. )

Yes, historic PE is of course only one of many measures, but I don't think many here are too interested in the intricacies of company valuations. You will of course know, that there was not an official forecast for full year 2018, which did surprise me, because there were so few months remaining before the year end.

Hopefully 2019 and 2020 will be big growth years for AML, and that should justify market values.

In the IPO, institutional investors did pay just over £1,000,000,000, for something which some of us said was overvalued.
Only three weeks later (in theory), they could have saved themselves (or their clients) £200 million.

The point which I am making, is not to do with 'faith in the Company', it is only that the initial valuation always looked too high, notwithstanding that the institutions did agree to pay that figure.

Edited by Jon39 on Sunday 21st October 19:05

[IanV12VSRs]

I am really not sure why you needed to post that Jon. It just didn’t come across well IMO and felt a bit like gloating - which I am sure it was not meant to be.