There were concerns over what would happen to Ferrari (RACE) when the company went public in late-2015.
Would it garner a premium valuation, particularly as its parent company Fiat Chrysler (FCAU) had anything but? Or for that matter, virtually every car company on earth, like Ford Motor (F) , General Motors (GM) or Daimler (DDAIF) .
Another concern was what would happen to Ferrari stock during a recession? Since we haven't had one yet while Ferarri's been public, it remains to be seen. It will probably be hit like most stocks and most automakers, but at least Ferrari has a wealthy clientele and doesn't have an issue selling out of all of the cars it makes right now.
We've found out that it does indeed garner a premium valuation for its premium autos and that's been seen in the stock's 163% rally since its IPO.
Now, Aston Martin is looking to do the same.
On Thursday, the British carmaker filed for an IPO in London that would value it at nearly 5.1 billion pounds, or roughly $6.7 billion. The stock should begin trading on or around Oct. 8.
Some may be surprised at that valuation, given that it actually values Aston Martin at a higher multiple than Ferrari. While Ferrari is now worth a hair over $25 billion, it makes more money than Aston Martin and generates more cash flow. Its margins are strong, quarterly reports are better than expected and halfway through its fiscal year the company told us it had essentially maxed out its order book for the year.
Still, it's valued at a little over 20 times its adjusted EBITDA vs. Aston Martin, which would be valued at more than 24 times the same metric.
At least one analyst is taking issue with that, with Bernstein's Max Warburton saying Aston Martin is, "selling a business that is loss-making on a U.S. GAAP basis, with a weak profitability record and fragile balance sheet, selling cars at much lower price points, to a much less dedicated audience."
To be frank, it's hard to argue with Warburton. But as we've seen from Tilray (TLRY) , the valuation and fundamentals don't always have to make sense for the market to run with it.
That much is true, too. The company is working on revamping its Lagonda lineup, with options for an electric car and SUV. It also plans to introduce its first SUV in 2020 (beating Ferrari to the market) and has even showed off an autonomous aircraft unit.
What those mean for the bottom line vs. the impact on the R&D budget remains to be seen. But as it stands, Aston Martin appears like it will get a warm welcome to the public markets.
Aston Martin's IPO Impact
The question then becomes, do more IPOs make sense?
Before his sudden and tragic passing, Fiat and Ferrari CEO Sergio Marchionne had pushed for an M&A deal with industry peers. That's because many of these companies are widely considered undervalued and it's exactly why Fiat offered a portion of its Ferrari stake to the public -- so it could garner the premium valuation that it deserves.
For instance, Fiat could consider spinning out Jeep. Or Volkswagen (VLKAY) could spin out Bentley or Lamborghini.Perhaps seeing how some of these brands are being received by the public markets and how they trade over the next 6 to 12 months will encourage other automakers with an umbrella of brands to attempt to unlock some value for shareholders.
If Aston Martin's IPO goes smoothly and shares perform well over the next year or so, I would expect other moves in the industry. That's also assuming we're not near a recession.