- Time to turn positive, upgrading to Buy
* Two positive pieces of news in as many days* First programme disposal
* A bet on the resilience of the Services activities
* We keep our TP unchanged and upgrade the rating to Buy
- Two positive pieces of news in two days
Over the last two days, Alstom has announced two pieces of positive
news. First, the company announced yesterday it had been awarded a
turnkey contract for a gas power plant (4 X GT13) in Iraq. The contract is
an EPC worth EUR400m. Second, it announced this morning the disposal
of its steam auxiliary components activities to Triton, a private equity
fund, for an enterprise value of EUR730m.
- First disposal in the proceed programme
The business sold by Alstom is a part of the Thermal Power business group
and mainly produces heaters and heat transfer solutions in both the new
equipment and after-market services markets. Last year, it generated
EUR430m of revenues with a double-digit operating margin. Some press
articles mentioned EUR60-65m in EBITA. Then, the disposal would have
been made at a multiple in excess of 11x EBITA. The next step in this
programme would be the disposal of 25-30% of Alstom Transport through
an IPO or an industrial deal.
- A bet on the resilience of the Services activities
By upgrading our rating to Buy today, we are betting that Alstom’s
earnings will remain resilient at around 6.5-7.0% for operating margin in
the downturn (2013/14 and 2014/15, at 6.9% and 6.7%, respectively).
Such a scenario implies that Services activities in Thermal Power will keep
their profitability above 15% in terms of operating margin, as they have up
to now. Thermal Power Services accounts for 50% of the group’s total
profit currently.
- We keep unchanged the TP, and upgrade the rating to Buy
We have not changed our TP, which remains at EUR26, based on a DCF
approach. We believe the downside is now limited, and bet on a news flow
that might improve, with the ramp-up of the disposal programme. The
disposal announced today was made at the high-end of its valuation range,
which was expected, and should contribute to reassuring investors about
the value of Alstom’s assets.