Alstom is a very interesting case. Order books are full, rail development is being pushed by many governments to decarbonize transport, but the stock has had a chaotic run over the past few years, as we have often reported in these columns. This is due to the difficult integration of Bombardier, the burden of a high level of debt, and operational efficiency that leaves much to be desired. Alstom has burned through $2 billion in cash over the past 4 years. As a result, Alstom 's share price plunged by 70% between early 2020 and mid-March 2024, when it was due to exit the French index CAC 40.
The end for Alstom? Not at all, since then Alstom has recovered... almost 70%. At this point, I know that the math whizzes will tell me that -70% followed by +70% is not a return to square one, but let's salute this fine progress all the same. Thanks to a €1 billion capital increase, a debt reduction plan and a valuation that's one step ahead of the rest, Alstom is the best performer on the SBF 120 in 2024.
A good quarter
On Tuesday, the rail equipment supplier reported higher sales for the third quarter of its offbeat financial year. Over the October-December period, the Group posted sales of 4.67 billion euros (against a Factset consensus of 4.33 billion euros), up 9.8% on a like-for-like basis.
Although orders were down year-on-year, and below analysts' expectations, this is in line with Alstom 's strategy of prioritizing contract quality over volume. Indeed, Alstom inherited unprofitable contracts when it took over Canada's Bombardier. This strategy is all the more relevant given Alstom's already full order book. It stands at 94.7 billion euros, representing around five years' sales.
Encouraging prospects... but already in the price range?
Alstom 's outlook for 2025 is encouraging: sustained demand, particularly for service and signaling activities, the completion of the Bombardier integration and an order intake to sales ratio of over 1.
In financial terms, Alstom forecasts organic sales growth of 5%, a return to positive free cash flow, in the order of 300 to 500 million euros. And net debt should be more than halved by the end of 2025 compared with the end of 2024.
For the time being, MarketScreener analysts remain cautious, and will be paying close attention to execution risk, particularly with regard to the increase in rolling stock production. This will depend on Alstom 's ability to cope with supply chain constraints. And recent years have shown us that many external shocks can put a strain on supply chains.