Aston Martin’s proposed IPO, pencilled in for later this year, is an eye-catching opportunity for investors and one that is likely to remain a focus of the investment community for months to come.
A chance to own a business with rising profits, as well as get exposure to a much-celebrated part of British motoring history, could well prove an alluring combination for many when the business floats.
But as with every investment, the detail of the IPO will be crucial. It is easy to get carried away with the excitement of such opportunities, only for reality to set in once investors have parted with their money. History is littered with both winners and losers when it comes to stock market listings.
So how should investors approach IPOs like Aston Martin? Below, three investment experts highlight some crucial factors to consider.
Elaine Morgan, portfolio manager of the Kames UK Smaller Companies Fund
It’s key to look for a strong management team with shareholder alignment, which has been successfully managing the business for a reasonable time, has listed experience on the board of directors to help with the transition to listed markets, and has ‘skin in the game’ – this means top managers are also partial owners of the business, providing alignment with other shareholders.
They should also opt for businesses with a proven, self-funded model with a large target addressable market. I prefer businesses which have reached commercialisation and where demand is mature enough to show trends, so I look for a large target addressable market, with potential for high return on capital. Growth for companies is also easier where demand is supported by a positive environmental, social, technological or regulatory change which is encouraging adoption, while returns will be higher where organic growth prospects are self-funding.
Finally, investors should look for conservative forecasts which are reasonably valued and have the possibility for upgrades. Of course, companies have to earn their valuation through delivery and therefore, where relevant, a discount to comparable peers should be visible two years out.
Adrian Lowcock, head of personal investing at Willis Owen
IPOs can be great investment opportunities but like all investments they come with risks attached. One key thing to look out for is the hype – many floats come with a lot of hype surrounding them but it is not always easy to separate that from the opportunity itself.
The best approach is not to chase an individual IPO but spread your exposure across a range, or better yet still employ an expert fund manager to do it for you.
Laith Khalaf, senior analyst at Hargreaves Lansdown
There are few people who wouldn’t want an Aston Martin on their drive – and even fewer who can afford one.
However, this stock market float allows investors to buy into a little of the glamour of Aston Martin, without getting a second mortgage.
It’s important for potential investors to concentrate on the company’s financial prospects and not to get carried away by the brand, however, and that means having a thorough read of the forthcoming prospectus.
Aston Martin could be valued at between £4 to £5 billion, which would put it at the top end of the FTSE 250, ahead of companies like Travis Perkins and William Hill and nipping at the heels of FTSE 100 stalwarts like M&S and Royal Mail.