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(Bloomberg Gadfly) -- The lights are amber for Aston Martin to go public -- but not yet at a valuation resembling Ferrari NV's.
The British luxury carmaker and its Italian and Kuwaiti owners may consider a flotation in 2018, Bloomberg News reports. They certainly should. After years of trouble, Aston Martin is on the verge of having an investment story that could appeal to stock market investors.
The company is two years into a strategy to introduce a host of new models by 2021. The 2016 results contained a raft of write-downs as it cleaned up the balance sheet, pushing it to a pretax loss. With next year's numbers, the carmaker should be able to show a decent record of recent revenue and Ebitda growth.
Meanwhile, Ferrari NV has fared brilliantly since its initial public offering, outperforming European stocks. The market has warmed to the idea that Ferrari has more in common with handbag-maker Hermes International than Volkswagen AG and should be valued on a racy luxury rating.
Ferrari's stock price implies an enterprise value of 16 times forward Ebitda. On that basis, Aston Martin would be worth 2.5 billion pounds ($3.25 billion) today. BMW trades on a less opulent 6.8 times and Daimler AG on 2.4 times.
For now, the Ferrari comparison is a stretch for Aston Martin, a small carmaker on the road to becoming profitable. Its Italian rival is diversified and makes money. Ferraris have better residual value than Astons even if the British company is closing the gap. So investors are going to be wary of buying into an Aston Martin IPO on a Ferrari-style sales or Ebitda multiple. They will want evidence that the turnaround is complete and that profit will be predictable in coming years.
Critical to this is the DB11 sportscar, the first of Aston Martin's new generation of vehicles. Good order numbers this year will foster confidence that other models will sell. That includes a new luxury sports utility vehicle. While this is one of the fastest-growing car markets, the company is targeting drivers who haven't bought an Aston before.
It's clear what Aston Martin wants to become: a luxury marque capable of shifting more units than Ferrari, generating enough cash to fund R&D but without compromising brand cachet. It will be several years before we'll know whether that's possible. From the outset it will merit a clear discount to Ferrari. That may even drag Ferrari's valuation down once investors have a proper listed rival for comparison.
If Aston Martin choses to float -- and the timing of any sale remains highly uncertain -- it would be odd for London not to pay host. Manchester United Plc and now Pret A Manger may prefer New York. But Britishness is part of the Aston story. If London can't land this one, it has a real problem.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
To contact the author of this story: Chris Hughes in London at firstname.lastname@example.org.
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