It has been an eventful year for Aston Marin Lagonda. The troubled British luxury carmaker received a much needed lifeline of investments and leadership changes, beginning with Lawrence Stroll and a consortium of investors buying 16.7% of the carmaker for 182 million pounds with another 328 million pounds being raised via a rights issue. Stroll, a fashion mogul and owner of the Racing Point F1 team, became Executive Chairman in April. Tobias Moer, the CEO of the AMG division of Mercedes previously, was appointed Chief Executive of Aston Martin as the company eased out now former CEO, Andy Palmer. Mercedes further strengthen their connection to the carmaker in October by agreeing to raise their stake in the company, in stages, to 20% from 5%. Toto Wolff, team principal and part owner of the Mercedes AMG Formula 1 team, also acquired a 1% share of the company.
Distress Into Excitement
Aston Martin Lagonda had their initial public offering on the London Stock Exchange in October 2018. The share price since then has tumbled as the brand struggled immensely with its finances. A significant amount of short term, high interest debt was taken on in preparation for the launch of the DBX sport utility vehicle. Though a late entry to the SUV market for Aston Martin, the model is a major part of Aston’s plan to capture part of a red hot vehicle category that has brought other carmakers huge increase of sales volume to improve cash flow.
The investments and leadership changes made this year though have brought a new excitement and cautious optimism to turning around Aston Martin’s fortunes. The company has a much stronger balance sheet and cash position. Lawrence Stroll will rename the Racing Point F1 team to Aston Martin F1, bringing the brand to Formula 1 and providing a massive marketing platform as the motorsport series visits 23 countries in 2021. The DBX is rolling out from the all new manufacturing facility in Wales, which had started with 2,000 orders in the pipeline. The brand’s relationship with Mercedes also brings access electric powertrain technology, now a necessity for carmakers to remain competitive in the future among changing demand and regulations.
Finding A Way To Invest
This new excitement in the future of Aston martin is consequently attracting a wave of individual investors also interested in picking up shares in the company. For investors in the United States though, it is not too simple to buy shares on foreign exchanges. The best alternative is to purchase ADR shares of the company if they are available. American depositary receipt (ADR) shares are issued by a U.S. depository bank, representing a specified number of shares of a foreign company’s stock, making it easy for U.S. investors to gain access to shares. Luckily, an ADR for Aston Martin Lagonda Global Holdings is available under the ticker, ARGGD. However, there is one critical point to understand. ARGGD is an unsponsored ADR.
All ADR offerings are either “sponsored” or “unsponsored.” An unsponsored ADR is created without the direct involvement, or “sponsorship”, of the foreign company being represented. If a depository bank sees enough investor demand for shares of a foreign company, it can establish an unsponsored ADR and create a trading market for it. In the case of ARGGD, Citibank serves as the depositary bank, whose primary role is the issuance of the ADR program as it acquires the foreign stock. As a result, the trustworthiness of the depositary bank becomes an important risk factor in owning the ADR, though Citibank is a reputable and prominent depositary bank. All unsponsored ADRs trade only on over-the-counter markets. ARGGD trades on PINK Sheets. Unlike owning regular stock or a sponsored ADR, holders of unsponsored ADRs are not likely to be granted any shareholder benefits such as voting rights, dividends, or distributions as a part of a buyout or merger.
When selling ADR shares, you will very likely do so as a trade on the OTC markets through your broker, but shares can also be returned back to the depositary bank for a cancellation fee of $0.03 in return for the equivalent proportion of the foreign stock. The price of an ADR is in theory supposed to be equivalent to that of the underlying foreign shares, however, ADRs are often traded at a premium. The chart above compares performance of Aston Martin’s two listings over the past six months. While the result is not equally matched, it does have a close relationship with the ADR regularly maintaining a higher premium. This premium is often due to differences in trading volume and higher demand for limited ADR shares.
Going Along For The Ride
So while Aston Martin is not directly offering shares for the U.S. markets, the unsponsored ADR still offers a great opportunity for investors who believe in the future value and growth on the business. As with any investment, ensure you understand the fundamentals of the business. Purchasing ADR shares of a foreign company also means understanding the political, currency, and regulatory risks that surround that company before having visions of driving a DBS Superleggera at Laguna Seca. Stay tuned for more articles following the hopeful turnaround of Aston Martin.