Bond in driving seat in Aston Martin investment
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Quentin Webb
LONDON (Reuters Breakingviews) - Aston Martin is getting a welcome boost from a 150 million pound capital injection. The cash from Investindustrial, the buyout shop that turned round Ducati, should lift research and growth at James Bond's favourite carmaker. But perhaps appropriately, Aston Martin's bondholders seem the biggest immediate winners.
The Italian private equity firm is not buying in on the cheap. Its 37.5 percent stake in new shares values Aston Martin's enlarged equity at 400 million pounds, while debt stands at 380 million pounds. That equates to an enterprise value of almost twice sales and roughly 11 times EBITDA, assuming earnings before deductions hit 70 million pounds this year - two multiples that would be the stuff of fantasy to most big carmakers.
But the roadmap from here is at least clear, if not straightforward. Aston's plans to funnel 500 million pounds into research and development over the next five years or so should help keep the range fresh. That may include plugging an obvious gap: SUVs. Porsche proved with the Cayenne that the same luxury marque can credibly produce both two-seaters and Chelsea tractors.
Befriending a big automaker, beyond Aston's extended engine pact with Ford (F.N), is a must, too. Even with fresh cash, developing new platforms and engines alone is tough, especially as emissions standards tighten. Mercedes would be ideal.
And Aston Martin must get bigger in China, which will account for just 5 percent of 2012 sales, Bernstein estimates.
If Investindustrial can repeat its success with Ducati, it will spare the blushes of the current Kuwaiti owners, led by The Investment Dar. So far, their five-year bet has gone backwards. Bringing in outside capital and expertise is embarrassing for such a prestigious investment.
For now, though, the clearest winners are Aston Martin's bondholders. The junk securities were sold in June last year, just before the high-yield market flipped from mania to depression. By last December they were trading at little over 60 percent of face value and yielding more than 20 percent.
They have recently roared back towards par. Anyone who bought at the low, collected the coupon payments and sold out now would have made nearly 80 percent in a year. In a low-yield world returns like that deserve a Martini or two.
- On December 7 Aston Martin announced that Investindustrial, the Italian private equity firm, would pay 150 million pounds to acquire a 37.5 percent stake. The British luxury carmaker's largest current shareholder is The Investment Dar of Kuwait, which led a group which bought Aston Martin from Ford Motor in 2007.
- The Italian group, which sold luxury motorcycle maker Ducati to Volkswagen (VOWG_p.DE) in April, trumped Indian tractor maker Mahindra and Mahindra (MAHM.NS) to the investment, which will be made via a capital increase.
- The sportscar company plans to invest more than 500 million pounds over the next five years in a new product and technology programme. Investindustrial expects the deal to close following clearance from competition regulators in the first quarter of 2013.
- Last week, Moody's Investors Service warned it could downgrade the rating on Aston Martin's bonds, after weaker-than-expected third-quarter results. Aston Martin revenue fell 19 percent to 305 million pounds in the first nine months of the year, as unit sales fell 19.5 percent to 2,520 vehicles, according to Moody's.
(Editing by Antony Currie and Martin Langfield)
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