(News Bulletin 247) – Euronext’s scientific council has decided to keep the railway equipment manufacturer in the benchmark index. At least for the moment.

Alstom keeps its napkin ring at the table of the French stock market elite. For at least three more months.

The scientific council of Euronext, the Paris stock market operator, decided Thursday evening to keep the railway equipment manufacturer within the CAC 40, unlike the payments group Worldline.

The two companies were both widely expected to leave the index, given their recent stock market disappointments. Worldline lost nearly 59% over one session and Alstom 37.6%. The scientific council therefore chose to expel just one rather than two.

The market had perhaps begun to anticipate an exit from the group’s CAC 40, which theoretically would have been negative for its action, because index fund managers (ETFs) would have been forced to sell the title of the TGV manufacturer to continue to respond. the performance of the CAC 40.

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Beyond the 60th market capitalization in Paris

This Friday the action reacted well: it increased by 1.2% to 11.77 euros around 3:20 p.m. and even had the luxury of resisting a downgrade from JPMorgan which lowered its recommendation on the value from “overweight” to “neutral “.

Alstom, however, remains on borrowed time. With a plunge of 48% since the start of the year, and more than 70% over three years, the railway equipment manufacturer remains the lowest market capitalization of the CAC 40. At around 4.5 billion euros, this capitalization is above 60th place on the Paris Stock Exchange. Even if Euronext looks not at the total capitalization but at the floating capitalization, in its decision criteria, this rank appears insufficient to guarantee the group’s presence on the CAC 40 beyond the very short term.

Especially since the catalysts may be lacking for its action to restart an upward movement. Conversely, several uncertainties weigh on the group’s title.

Remember that the company has scalded the market in recent weeks, after issuing a resounding warning about its cash generation. In the first half of its 2023-2024 financial year, which ended last September, the group burned more than a billion euros in cash and expects the cash disbursement to be between 500 million and 750 million euros. euros over its entire financial year. This odd situation fueled fears about the fragility of its balance sheet (which had been highlighted in mid-September by Barclays) with the risk of a downgrade of its credit rating by Moody’s.

The rating agency currently assigns a “Baa3” rating to the company, the last rating before the “junk” (speculative) category.

In mid-October, Moody’s also granted a reprieve to Alstom, maintaining this rating while lowering its outlook to “negative”. The agency then called on the group to carry out “inorganic” debt reduction measures, in other words sales or a capital increase.

The risk of the capital increase

However, Alstom has made the defense of its credit rating an absolute priority, because a downgrade would (in particular) be synonymous with higher financial costs.

As a result, the group needs not only to redress its cash generation but also to take additional measures to reduce its debt. The company indicated in mid-November that it was targeting 2 billion euros less in net debt by the end of March 2025.

To do this, Alstom intends to sell assets representing 500 million to 1 billion euros and/or use quasi-equity securities, for example through a subsidiary in which third-party investors would be associated and where certain assets. Before Alstom, Air France-KLM had used such processes, by opening subsidiaries to the Apollo fund housing its loyalty programs and its engineering and maintenance activities. Apollo then each time subscribed to perpetual bonds, which are considered equity under international accounting standards.

Will that be enough though? In addition to the two options mentioned above, the group has now opened the door to a capital increase, which it refused to do before. Even if Henri Poupart-Lafarge, the CEO, suggested in an interview with Les Echos that this was an option of last resort.

But the simple fact of having mentioned this call to the market further upset investors. “This creates an unwelcome sword of Damocles,” Deutsche Bank judged last month. “This prolongs the period of uncertainty for shareholders. In particular, the sale of assets could take longer than expected in the current context,” Stifel warned.

Our colleagues at BFM Business reported last week that the group would likely have “difficulty” reaching an amount of one billion euros in asset sales and judged that the capital increase risked being “inevitable” .

For the shareholders of the group, such an operation would be synonymous with potentially high dilution and would risk further reducing the company’s market capitalization.

With such uncertainties and risks, it therefore seems complicated for Alstom to bounce back on the stock market in the coming months. As a result, its place within the CAC 40 still appears weakened.

Certainly, high cash generation in the second half would send a good signal to the market. But the group will only publish its results in May 2024. Until then, the Euronext scientific council will meet once again to decide on its presence within the CAC 40, on March 7.