Investors’ interest has been piqued by the announcement of an initial public offering (IPO) of shares in luxury British car maker Aston Martin.
The luxury car firm has announced its initial price range for shares for its IPO of between £17.50 and £22.50 – a market value of between £4.02 and £5.07 billion, which would put the firm near the top of the FTSE 250.
In value terms this would make it comparable in size to Marks & Spencer or Royal Mail.
The final price of shares is to be set on 3 October, with share trading due to begin 8 October. But should investors be jumping on the bandwagon?
If you were to buy one of the luxury car brand’s newer models, the V8 Vantage, it would set you back around £120,900 new.
If you were to buy shares at a mid-price value of £20, you could buy 6,045 shares in the company for £120,900 instead. Other models include:
- DB11 Coupe - £147,900 or 7,395 shares
- DB11 Volante - £159,900 or 7,995 shares
Fund supermarket Hargreaves Lansdown says it expects a high level of consumer investor interest. Laith Khalaf, senior analyst at the firm, comments: “Unlike a luxury car, those shares can be stored in a pension or Isa, rather than a garage, for safekeeping. Unfortunately, private investors won’t be able to participate in the IPO, but they will be able to buy shares on the market when they start trading.
“It’s important for potential investors to concentrate on the company’s long term financial prospects and not to get carried away by the brand however.
“That means having a thorough read of all relevant information the company is producing as part of its float, and only investing if they are happy with all the risks involved."
Shaken, not stirred
Lee Wild, head of equity strategy at Interactive Investor (Moneywise's parent company) thinks Aston Martin is now a strong business: "Investors with long memories will know that Aston has gone bust seven times, but experienced new management has got its house in order and this is now a fantastic business supplying a growing market for premium motors. Aston is also in a much better position to ride out an economic downturn.
"Association with royalty and James Bond mean Aston Martin has no problem selling expensive sports cars to wealthy buyers. Bullish production forecasts are underpinned by ambitious plans to expand the range of vehicles, and the company is generating healthy profits.
"Pricing its shares at up to £22.50 each might make them less attractive to the general public, but they’re still more affordable for most of us than Aston’s supercars and might even turn a profit if the business hits ambitious targets."
Remember, buying shares is a much riskier endeavour than more stable investment assets such as funds and investment trusts. Mr Khalaf cautions on previous examples of a luxury car IPO: “When Ferrari listed on the stock market is was priced at $52 per share. The share price faltered in the first five months, falling by around 38%.
“It has since rallied to around $135, though this serves to highlight that just because a well-known brand launches on the market, share price movement on flotation is always a two-way street.”
If you’re uncomfortable with this level of risk as an investor Moneywise prepares a list of 50 top-grade investment funds and investment trusts called the Moneywise First 50 Funds for beginner investors.