Alstom, the French train manufacturer, experienced a shocking 35% drop in its shares on Thursday after announcing a significant reduction in its free cash flow forecast. The company’s unaudited half-year results, released the night before, revealed a drastic decline in free cash flow from negative 45 million euros to a staggering negative 1.15 billion euros. Alstom now anticipates negative cash flow ranging from 500-750 million euros for the entire year, a stark contrast to their previous prediction of a “significantly positive” outcome.
As a result of this devastating news, trading of Alstom shares on the Paris Stock Exchange was temporarily halted. According to data from LSEG, this decline marks the worst trading day for the company in at least 20 years, resulting in a loss of approximately 2.6 billion euros of market value.
Alstom attributes the decrease in cash flow to an increase in inventory build-up and delivery delays, particularly in the US and Europe. The company also faces challenges in completing the Aventra program in the UK, an electric train project acquired through the purchase of Bombardier Transportation of Canada. Weaker than expected orders in the first half of the fiscal year have further contributed to the cash flow squeeze.
Though the announcement has shaken investors, UBS analyst Supriya Subramanian maintains a 12-month “buy” rating on Alstom’s stock. Subramanian predicts improvements in the second half of the year, including the resolution of production challenges.
However, the sharp decline in cash flow has raised concerns about the company’s credibility. Analyst Gael de-Bray from Deutsche Bank suggests that Alstom’s investment grade rating is now at risk, potentially leading to a capital increase. The acquisition of Bombardier’s train unit, originally priced at €7.5 billion, was later reduced to €5.5 billion due to unexpected losses reported by the Canadian group.
Alstom’s struggle with cash flow could result in an end-of-year net debt of €3 billion, surpassing previous expectations by €1 billion, according to Deutsche Bank analysts.
(Source: Sarah White | Philip Georgiadis | Jonathan Wheatley | Financial Times | Jenni Reid | CNBC)
