Company Reports

Narrow-moat Alstom has launched a share capital increase of approximately EUR 1 billion with preferential subscription rights, as part of its final step in a EUR 2 billion deleveraging plan. This initiative allows existing shareholders to subscribe to new shares at a ratio of one new share for every five existing shares, priced at EUR 13 per new share, a 29% discount to the current market value. Consequently, we are reducing Alstom’s fair value estimate to EUR 20.90 from EUR 21.70 to account for the higher-than-expected discount.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors.

Narrow-moat Alstom reported a negative full-year free cash flow of EUR 557 million after reporting negative EUR 1.15 billion cash flow in the first half of the year, resulting in a net debt of EUR 3 billion as of March 2024, up from EUR 2.13 billion the year before. However, we have increased our fair value estimate from EUR 17 to EUR 21.7 as the firm provided updates on its deleveraging plan. Our previous fair value of EUR 17 included sales of assets for EUR 500 million and EUR 1.5 billion of equity issuance at EUR 12 per share, with no hybrid bonds. We increase our fair value to EUR 21.7 as we incorporate management’s deleveraging plan, with the equity issuance expected at EUR 16 per share and the sale of the US signaling business viewed as value-neutral.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors. With developments in rail infrastructure in emerging countries, advances in eco-friendly transit, and automation in railways, Alstom's growth potential is significant.

Alstom's recent financial results met expectations but were overshadowed by the need for potential capital raising and dividend suspension. Previously, the company issued a cash flow warning yet ruled out a capital increase. That changed following Moody’s recent downgrade to Alstom’s credit outlook, shifting management focus in reducing net debt to maintain its investment-grade rating. Alstom must lower its gross debt-to-core profits ratio to 3.7 from approximately 4.5 in the next 12 months and reduce net debt by EUR 2 billion by March 2025. These targets are to be achieved through asset sales, quasi-equity issuance, and potentially a capital increase.

Alstom offers a comprehensive portfolio, including rolling stock (53% of revenue), services (23%), and signaling and systems (24%), setting it apart from competitors. With developments in rail infrastructure in emerging countries, advances in eco-friendly transit, and automation in railways, Alstom's growth potential is significant.

Alstom shares dropped 37% on Oct. 5 following the firm’s announcement that cash flow was negative EUR 1.15 billion in the first half of fiscal 2023/24, caused by escalated inventory, lagging progress on the U.K. Aventra project, and subpar order placements. We are placing our fair value estimate under review pending the transition of coverage.

We are positive on the growth prospects of Alstom and the global rail transport industry as a whole. A major step-up in global efforts to address environmental concerns through increased availability of capital for sustainable infrastructure, of which rail is a big beneficiary, is a trend, which in our opinion will see an acceleration over the coming decade.

Alstom reported solid fiscal third-quarter revenue and orders. We maintain our EUR 38 fair value estimate and narrow moat rating.

Narrow-moat Alstom reported first-half fiscal 2023 results in line with expectations. Order intake of EUR 10.1 billion declined by 1% organically, while sales grew by 5% on an organic basis. Adjusted EBIT increased by 18% driven by a 40-basis-point margin expansion to 4.9% as a result of synergy realization and mix shift, which was offset by inflation. We maintain our EUR 38 fair value estimate, which is predicated on the lower end of management’s medium-term guidance range. Shares appear attractive should these targets be met without the need for a capital raise.

We are positive on the growth prospects of Alstom and the global rail transport industry as a whole. A major step-up in global efforts to address environmental concerns through increased availability of capital for sustainable infrastructure, of which rail is a big beneficiary, is a trend, which in our opinion will see an acceleration over the coming decade.

Narrow-moat Alstom cautioned investors about the impact of inflation and supply chain shortages on margins and its ability to deliver over the coming financial year. While sales and margins are still expected to grow for the full year, on condition that global economic and supply chain pressures do not intensify, we believe both will disappoint relative to previous expectations. This is another obstacle for a business that is desperately trying to convince the market of its long-term investment case. We maintain our EUR 38 fair value estimate, which is predicated on the lower end of management’s medium-term guidance range. Shares appear attractive should these targets be met without the need for a capital raise.

We are positive on the growth prospects of Alstom and the global rail transport industry as a whole. A major step-up in global efforts to address environmental concerns through increased availability of capital for sustainable infrastructure, of which rail is a big beneficiary, is a trend, which in our opinion will see an acceleration over the coming decade.

Narrow-moat Alstom is trying really hard to shift investor attention to the medium-term as the EUR 5.5 billion Bombardier Transportation acquisition still haunts the group. Management is confident that it can achieve its previously communicated medium-term target of 5% top-line growth and an adjusted EBIT margin in the 8% to 10% range, which implies EBIT growth in the 20% range if achieved. However, with the stock down 10% as of this writing and more than 50% from its 52-week high, the market remains skeptical about the integration of the group’s largest acquisition to date, which is plagued by unprofitable legacy contracts and poor customer relations. This is a true “show me” story with attractive upside to our EUR 38 fair value estimate that assumes the group can reach the bottom end of its medium-term guidance. This is an opportunity for patient investors with a stomach for potentially more bad news.

Narrow-moat Alstom has filed a request for arbitration against Bombardier to the International Chamber of Commerce regarding its purchase of the former Bombardier Transportation business for EUR 5.5 billion. The claim relates to the alleged breach of certain contractual provisions of the sale and purchase agreement. Alstom did not provide further specifics, but we suspect it is due to the lack of predeal disclosure by Bombardier of the extent of problematic contracts. We expect more negative announcements, which will affect profitability and cash flow. The group reported free cash outflow of about EUR 1.5 billion at its first-half 2022 results relating to legacy Bombardier contracts and expected that free cash flow will return to a neutral position by the second half, which we view as an unlikely target.

Narrow-moat Alstom maintains short- and medium-term guidance as group order intake and sales for the third quarter of 2022 grew by 5% and 5.5%, respectively. Order intake of EUR 4.6 billion in the quarter was driven by rolling stock and services, while Europe continues to fuel growth from a geographic perspective. Sales of EUR 3.9 billion is underpinned by growth across all product lines and the stabilization of underperforming contracts inherited from the Bombardier acquisition. We don’t expect to make any changes to our forecasts, with shares currently trading at a slight discount to our EUR 38 fair value estimate.

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.