Could Aston Martin enter the FTSE 100?
Aston Martin (LSE:AML) has never been in the FTSE 100 index. The car builder was close to the threshold at its launch in 2018, but the share price fell, and then fell even more.
The British marque was worth £4.3bn when its shares starting trading on the stock market in October 2018 at £19.
However, the stock has fallen massively since its IPO. At the time of writing, it trades for just £2.17. And that’s after positive results sent the shares surging upwards this week.
So, let’s take a closer look at Aston Martin, and explore whether it could ever make the blue-chip index.
Lofty targets still out of reach
Businessman and executive chairman Lawrence Stroll has ambitious plans for the iconic car brand. He previously said that he wants to increase production to 10,000 cars per year by 2024/25, up from 6,600 in 2021.
By focusing on the ultra-luxury market as well as the DBX SUV, the chairman wants to achieve £2bn in revenues and £500m in adjusted EBITDA by 2024/25.
However, Aston is still some distance away from Stroll’s targets. In the 12 months to 31 December, revenue rose to £1.38bn, up from £1.09bn. The firm posted a £495 loss before tax, while net debt fell to £765.5m from £891.6m a year before.
A weak pound, partially engendered by Liz Truss’s mini budget, contributed to losses as debt repayments climbed. Its debts are held in dollars and a tumbling pound has made the interest costlier.
Q4 was positive with the iconic car maker turning a profit. The company made a narrow operating profit of £6.6m in the final three months of the year. This was achieved largely through higher average selling price for its cars. In Q4, Aston achieved an average selling price of £184,000, up from £152,000 last year.
These results were greeted favourably by investors as the share price jumped as much as 15% in early trading.
Investors will have been buoyed by further commentary too. Aston has been chasing higher margins for some time, and appointed former Ferrari boss Amedeo Felisa as CEO last year — Ferrari margins are the envy of all car builders.
Aston said its next generation of sports cars and limited edition luxury cars will have profit margins of 40%. As such, the Warwickshire-based business expects to hit its 2025 target with sales of just 8,000 cars a year, down from Stroll’s 10,000 target. In 2022, it sold 6,412 vehicles.
Should I buy Aston stock?
Well, I already hold stock in the carmaker. However, and this may surprise some, I’m looking to buy more. I’m very encouraged by this week’s data and the commentary — finance chief Doug Lafferty said he was “very confident” of meeting 2025 goals.
Joining the FTSE 100? Well, it would require the share price to more than triple. It’s not impossible, but it seems unlikely in the next couple of years, particularly with fairly poor market sentiment towards the firm. But if EBITDA of £500m is achieved, a £4.5bn valuation would not make it expensive versus the rest of the index.
Finally, I appreciate this is speculation, but perhaps a strong performance from the Aston Martin F1 team this year — and they’re looking good — could positively impact sales from the increasingly-US focused sport.
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James Fox has positions in Aston Martin Lagonda. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023