Alstom Reports Lower-Than-Expected Cash Outflows; We See Supply Chain Risks

All eyes are on narrow-moat Alstom’s near-term cash flows and the possibility of an equity raise as the group reported first-half results. The share price is trading up about 9% due to lower-than-expected cash outflows of EUR 1.46 billion, compared with previous guidance of EUR 1.8 billion, while second-half cash flows are still expected to remain positive. However, emerging global supply chain issues and inflationary pressures pose a risk and could hurt near-term cash flows as delivery schedules and costs are affected. The group reiterated that it currently has no plans for an equity raise, which was previously speculated in a Bloomberg article, but that it will reconsider should Alstom's investment-grade credit rating come under pressure. We believe there is a fair amount of headroom but do not completely rule out a capital raise in the event that supply chain bottlenecks intensify. The shares are currently trading at a slight discount to our EUR 38 fair value estimate.