* Alstom was viewed as a sub-scale energy player facing irreversible decline and burdened with an
ill-adapted financial structure. Then GE came along, buying the energy assets for EUR12.4bn. This
radically altered the outlook and risk profile for the ‘New Alstom’. Upgrade to Outperform.
* Alstom Transport at a 50% discount to peers – upgrade to Outperform, EUR32 TP
Based on our estimates, the current share price implies Alstom Transport at a 50% discount to
rolling stock peers. This looks excessive given the limited transaction risks. Our EUR32 TP reflects
a 15% discount, which could diminish progressively as Alstom discloses more information.
* Cash returns – a key catalyst
The announcement of the capital allocation strategy should be a catalyst, a test of management’s
ability to use excess cash in a value-creative way. With EUR4bn in adj. net cash, Alstom could
keep c.EUR2bn to exploit rail opportunities and return EUR2bn+ via a share repurchase offer.
* Rail Transportation – cyclical recovery with improving cash profile
Post-deal, Alstom will be the world’s third-biggest rail transportation player with sales of EUR6.6bn.
While EM competitors pose a LT threat, Alstom offers high-single-digit sales growth driven by
cyclical recovery, 140bp margin upside and improving cash generation thanks to urbanisation.
* Energy JVs – some upside potential, at worst ‘stranded cash’
Alstom’s EUR2.6bn reinvestment in Energy at the request of the French State might have
disappointed investors longing for a rolling-stock pure play. However, the JVs, jointly operated with
the no. 1 player, could offer up to EUR2/s in synergy benefits on our estimates. Also, downside
protection from a 2018/19 put at the entry price underlines the investment’s cash-like nature.
* French State on board – a manageable negative
The French state has the right to buy a 15–20% stake from Bouygues and will own 20% of voting
rights post-closing. We would prefer the state were not involved but this is a manageable negative,
and history shows no direct impact on performance from the state having a small stake (10–30%).