Alstom progressed well in FY19/20, with a limited impact from the Coronavirus towards end of the year. However, FY20/21 is likely to be rough, as containment-measures-led disruptions can delay production and demand for rolling stocks and maintenance/services, i.e. break the strong momentum in the European ridership. Consequently, the mid-term revenue guidance has been revised downwards slightly.
Being in the growing railway industry makes Alstom a safe play during challenging times – the Coronavirus, which is potent enough to disrupt global demand, may instead push infrastructure spending by governments. The scaled-up Alstom (post the acquisition of Bombardier’s rail business) will be even better placed to ride this trend.
Alstom has announced it is to acquire the rail business of the liquidity-crunched Canadian group Bombardier at a bargain price. The €5.8-6.2bn transaction will be c.85% funded by new equity issuance to existing shareholders of the target (CDPQ and Bombardier Inc.) and Alstom (via rights shares). The fate of this deal, which makes Alstom the second largest train-maker globally, is likely to be decided by competition authorities during the first-half of 2021.
Alstom ended Q3 FY19/20 on a positive note. While the revenue performance was mediocre (as expected), the robust order-intake lifted the group’s existing order-book to a record €43bn – equivalent to around five years of its annual turnover. Management has maintained the FY19/20 as well as the mid-term outlook.
During H1, Alstom performed well on the top-line and profitability fronts. However, free cash flow generation was poor, impacted by higher inventory requirements in the Rolling Stock business. While management has reiterated its mid-term outlook, we believe investors would be more alert about near-term shocks impacting the company’s FCF.
As expected, the tough comparable dampened Alstom’s Q1 revenue growth. Although the softness is likely to persist this year (with a gradual improvement in H2), we continue to expect healthy top-line growth in FY20/21. This should be supported by a healthy order-book worth €40bn (backlog/sales: c.5x) and attractive opportunities in Europe. No material change to our financial estimates.
Alstom’s new strategic plan (‘Alstom in Motion’) broadly met the market’s expectations on the key metrics such as operating profit, capex and FCF generation. Going forward, investors’ focus should be on management’s execution capabilities, especially with respect to FCF-generation and M&A activity (supported by a strong balance sheet). Our stock recommendation remains unchanged.
Even though Alstom’s FY18/19 results came in slightly behind the street’s estimates, an exceptional dividend and a solid order intake resulting in record-high order-book seem to have calmed the investors. Now all eyes are on the ‘Capital Markets Day’ scheduled for 24 June 2019, when the FY19/20 outlook will also be shared. We will marginally tweak our estimates and the stock recommendation is likely to remain unchanged.
Alstom reported Q3 18/19 sales and orders
Alstom booked €3.4bn of orders compared with €1.7bn last year, corresponding to an organic growth of 100%.
The company reported sales of €2.0bn, up 10% organically versus €1,827m in Q3 17.
The order book reached €39.7bn (5 years of sales).
The company confirmed its FY18/19 guidance of sales of c.€8.0bn and an EBIT margin of c.7%.
Alstom reported strong H1 18 results
Order intake reached €7.1bn in H1 18, +125% growth yoy (versus €3.17bn in H1 17).
Sales grew by 23% organically at €4bn (versus €3.34bn in H1 17).
The adjusted EBIT reached €285m, a 28% increase yoy and corresponding to a 7.1% margin. FCF was €172m.
For the fiscal year 2018/19, Alstom confirmed sales are expected to reach around €8bn and the adjusted EBIT margin should reach around 7% (instead of “until 7%”).
Alstom reported continuing positive revenue and order momentum in Q1 18 and confirmed its FY18 guidance in both revenues and margins. The company also has a strong pipeline in both Rolling stock and signalling/services projects. The closing of the Siemens/Alstom merger is now expected in the first half of 2019.
Alstom posted impressive results and beat market expectations on all metrics. The interesting point is the operating margin progress that resulted in a higher share of value-added activities (Signalling, Systems & Services) which already represent more than half of the revenue. The 2018/19 guidance in margins is lifted, which allows Alstom to enter into the merger with Siemens in a position of strength.
Alstom reported H1 17/18 figures which were above market expectations overall.
Revenues reached €3,756m, 5% organic growth versus last year (€3,570m) and in line with expectations.
Orders received amounted to €3,170m, a 49% decrease yoy (€6,212m), and included two contracts in Canada for almost 100 light rail vehicles, a first metro system contract in Vietnam, a metro system contract in Philippines, contracts for regional trains in Italy, Senegal and Germany, a maintenance contract in Sweden, as well as a fleet modernisation project in the USA.
The backlog reached €32.7bn, slightly below last year’s level of €33.49bn.
The operating profit was €231m (versus €200m last year), corresponding to a 6.2% operating margin (versus 5.6% last year). Net income was €213m (versus €128m) and FCF generation was €227m (€333m last year).
The company confirmed its 2020 targets: 5% organic growth per year and an EBIT margin of 7%.
Deal confirmed with Bouygues; French and German states supporting the transaction.
Creation of a pro forma €15.3bn company and adjusted EBIT of €1.2bn.
Listing in France and group headquarters in Paris area; led by Alstom’s current CEO and 50% shares of the new entity owned by Siemens.
Annual pre-tax EBIT synergies of €470m expected by the latest four years after closing (procurement, SGA, R&D and others).
Up to €8 per share dividend to Alstom’s existing shareholders: €4 per share at closing + €4 per share after the exercise of the put options in the energy JVs with GE valued at €2.5bn (in line with AV’s estimate).
The closing is expected at the end of 2018.
During Q1 17/18, Alstom recorded €1.91bn worth of orders (versus €900m last year), including two contracts in Canada for almost 100 light rail vehicles, a first metro system contract in Vietnam, contracts for regional trains in Senegal and Germany, a fleet modernisation project in the USA, as well as part of a metro system contract for Manila in the Philippines.
Sales, at €1.9bn, were up 5% organically in the first quarter 2017/18.
The backlog reached €34bn on 30 June 2017.
Objectives for 2020 are confirmed:
By 2020, sales should grow organically by 5% per year.
The adjusted EBIT margin should reach around 7% by 2020, driven by volume, portfolio mix and the results of operational excellence actions.
By 2020, Alstom expects a c. 100% conversion from net income into free cash flow.
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Judges Scientific, a group involved in the buy and build of scientific instrument businesses, has provided a trading update ahead of its AGM today. Year-to-date organic order intake, as of mid-May, was down 18.5% compared to the same period in 2019, caused by the closure of universities, the cancellation of scientific conferences and travel restrictions impacting sales and installations. Although the precise impact to order intake has varied by global territory, from minus 4% to minus 25%, the order book, at the end of April 2020, stood at a respectable 11.9 weeks (down from the 13.2 week starting position), the weaker order intake countered by reduced deliveries.
Jubilee announced yesterday that it will move its fine chrome plant from the Dikolong Chrome Mine (DCM) in South Africa to either its Windsor or Inyoni plant. DCM is not currently operational and Jubilee could make better use of its capacity at one of its other plants. Jubilee is a world-leader in fine-chrome recovery and the relocation of its plant will be earnings enhancing at one of the other locations.
Companies: Jubilee Platinum Judges Scientific
TP Group's FY19A results were in line with our expectations, with strong organic revenue growth of +16% YoY. Whilst the business remains resilient, with a large net cash position and a record order book, COVID-19 has caused uncertainty around the timing of some pipeline opportunities. Therefore, in line with a number of other companies, TP Group is withdrawing market guidance. We also withdraw our forecasts and place our recommendation Under Review.
Companies: TP Group
Last month’s update reported +15% LFL sales growth YTD (Feb & March) and also material margin improvement in areas that have received attention. Near-term uncertainty was however flagged, as Covid has impacted project fulfilment. In this context, today’s update is therefore encouraging, as LFL growth has continued through April – meaning +13% LFL sales growth YTD. April benefitted from service and install revenue (as well as recurring, ~£5m pa.). On this basis, CKT is therefore tracking considerably ahead of the company’s ‘bear case’ scenario. Looking ahead we are cautiously optimistic - as while revenue is set to decline in May - CKT mention “customer plans to resume installation projects”, particularly in Healthcare, where opportunities are described as strong. Timing and volume remain hard to predict however. Costs continue to be closely monitored and managed and as evidence, cash remains strong, at £12.8m – only marginally down from 31st March (£13.1m) and £14.3m as at January’s year-end. Prelims now expected 16th June.
Judges’ AGM update states that order intake as of 15 May was down 18.5% y-o-y. The company withdrew guidance at the prelims in March and that remains the case. Much depends on the duration of COVID-19 related lockdowns and the subsequent rebound, but we think it prudent to cut our top-of-the range forecasts. We cut FY20E PBT by 12.4%. The balance sheet remains solid (net cash) and can weather a far harsher storm. We maintain that Judges is a high quality business with strong margins, ROCE and FCF and excellent longer term growth potential. We revise our DCF methodology to look through the short term weakness and raise our TP from 4450p to 5245p. Maintain Buy.
Companies: Judges Scientific
OPG delivered a robust operational performance in FY20. Free cash flow generation enabled scheduled term loan repayments to continue. COVID-19 has caused power demand to significantly decline and lockdown has been extended to 31 May 2020. Despite this the long-term fundamental drivers supporting the power production sector remain compelling.
Companies: OPG Power Ventures
CAP-XX Ltd* (CPX.L, 3.1p/£10.1m) | Gfinity plc* (GFIN.L, 1.675p/£12.0m) | MTI Wireless Edge Ltd* (MWE.L, 38.5p/£33.8m) | Newmark Security plc* (NWT.L, 1.05p/£4.9m) | Mirada plc* (MIRA.L, 95.0p/£8.5m)
Companies: CPX GFIN MWE NWT MIRA
Salt Lake Potash reported positive results from the pumping of its paleochannel brine extraction bore at Lake Way. Grades and flow rates exceeded the averages applied in the BFS with a Grade 7,100mg/l vs 6,100mg/l and test pump flow 18l/second vs 8l/second. The paleochannel resource will be a significant contributor of brine supply over the life of the project so this is a good first result.
Companies: Salt Lake Potash
FRP is a UK-focused business advisory firm, specialising in corporate restructuring (administrations, liquidations etc), with a nationwide network and team of c360. In its AIM IPO, FRP raised £80m gross (£20m new) at 80p on a pre-money market cap of £170m to fund organic plans.
Companies: FRP Advisory Group
Gateley has issued a solid year end trading update despite inevitable COVID-19 related disruption in the last two months of the year (to 30th April). Revenue for the year will be not less than £108.0m (FY19: £103.5m). As anticipated, the breadth and depth of the Group’s legal and consulting service lines have underpinned a resilient outcome with the transition to remote working going smoothly. Swift action has been taken to mitigate the impact of the pandemic, whilst keeping teams intact to ensure the business is well equipped to take advantage of opportunities that arise as the UK economy moves into and out of recession. As we noted in our Stocks for Unprecedented Times note, Gateley has an exceptional track record, achieving revenue growth every year since 1986. This includes steady growth through the 2000-2001 recession, and a strong year for the business in 2010, demonstrating the Group’s resilience through the economic cycle. We remain of the view that Gateley will emerge strongly from the current crisis and expect to reintroduce forecasts as visibility improves later on in the year.
In the first four months of FY20E the Group secured contract renewals, new aerospace qualifications and won new business. This strategic progress was impeded by the onset of COVID-19 and resultant short-term demand reductions. Despite current macroeconomic instability the long-term fundamental drivers supporting Velocity remain compelling.
Companies: Velocity Composites
Universe has delivered final results to December FY19 in line with the trading update of early April, revealing EBITDA of £3.9m from revenue of £22.4m. Unusually strong free cash flow of £3.6m led to net cash of £2.9m, well ahead of original expectations of £0.9m net debt. Pre-COVID-19, FY20 got off to a strong start, with 1Q20 revenue of £5.2m and £16.8m visibility through recurring revenue and the order book proving underlying strength in a normal environment. With the successful April 2019 acquisition and subsequent integration of Celtech, the R&D roadmap has been accelerated an estimated three years or more, and the three strategic aims for the year (best product set, new business, and growth) have been fulfilled.
Companies: Universe Group
Avon Rubber has produced a strong set of interim results, with strong organic growth at Avon Protection and a much improved first half performance by milkrite | InterPuls in dairy. With the newly acquired Helmets & Armor line of business adding another growth stream, the outlook for the group is for the delivery of profitable growth notwithstanding the current pandemic.
Companies: Avon Rubber
Symphony Environmental has reported FY December 2019 results. Whilst the Company did experience a single digit fall in revenues, this has been well trailed in previous announcements, relating to inventory adjustments by some customers waiting for legislative clarification in certain markets. The Company did move into loss making territory (£0.6m at the operating level), but the balance sheet was able to more than adequately absorb this aided by the £1.9m strategic equity investment announced in 2019. Net cash (excluding lease liabilities to compare on a like for like basis post IFRS 16) stood at £0.9m vs. net debt of £0.1m at the corresponding period end.
Companies: Symphony Environmental Technologies
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There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
Companies: AVO AGY ARBB ARIX ASAI DNL GDR HAYD NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE TRX TON SHED VTA