(News Bulletin 247) – The Sino-British bank confirmed this Thursday its purchase advice on the railway equipment manufacturer seeing significant potential in the stock. She believes that the group will succeed in carrying out asset sales and quasi-equity financing, while generating cash. This would allow it to reduce its debt without resorting to the market.

Alstom had a dark year on the stock market last year, losing 46.6%, the worst performance on the CAC 40. The railway equipment manufacturer especially made its mark with a dizzying fall of 37.58% in a single session, in October.

On that date, the TGV manufacturer had issued a resounding warning about its cash generation, warning that it would burn more than 1 billion euros of cash over the first six months of its 2023-2024 financial year, ending next March. , and that the disbursement over the entire fiscal year would be between 500 million and 750 million euros. In mid-November, the stock fell further (-15% over one session) after the group opened the door to a capital increase to straighten out its balance sheet.

More precisely, Alstom announced that it was aiming to reduce its net debt by 2 billion euros by the end of March 2025, a debt which amounted to 3.43 billion euros at the end of last September.

In addition to organic debt reduction, via cash generation, the group had cited three potential levers to reduce debt. Alstom had mentioned transfers of assets ranging from 500 million to 1 billion euros or the issue of quasi-equity securities, for example through a subsidiary in which third-party investors would be associated and where certain assets would be housed. .

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HSBC sees more than 100% potential

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. The capital increase, the third lever, would only be activated as a last resort, estimate several financial analysts.

The idea for Alstom is also to give guarantees to Moody’s which rates the group “Baa3”, the very last notch before the “junk” category (“speculative”), the company wanting to avoid at all costs a deterioration which would be synonymous with higher financing costs. For the moment, Alstom benefits from a reprieve, Moody’s having maintained this rating in October although lowering the outlook to “negative”.

This Thursday, HSBC sent a message of confidence in the group’s ability to resolve these difficulties. The Sino-British bank confirmed its purchase opinion and its target on the stock at 23 euros, almost double the current price, judging that the upside potential is “significant”. This brings Alstom shares up 2.22% on the Paris Stock Exchange around 3:30 p.m.

“We believe that a capital increase can be avoided and we expect the success of asset sales, quasi-equity operations and organic debt reduction,” summarizes the establishment.

According to the bank, Alstom has enough quality assets to reach the top of its divestment target, i.e. 1 billion euros by March 2025. HSBC reports that the group explained during roadshows (conferences with investors) having received expressions of interest from competitors. Alstom has not disclosed the identity of the activities that could be sold, but BFM Business and Bloomberg reported in November that the group was studying the sale of rail signaling in the United States as well as its shares in joint ventures in China.

An improvement in cash generation to come?

HSBC also estimates that Alstom could raise around €500 million through quasi-equity financing transactions by temporarily bringing a minority shareholder into businesses with stable and predictable cash flows, such as contract portfolios. services or equipment.

There would therefore remain 500 million euros of the 2 billion euros less in net debt targeted by the company, a sum low enough for the group to be able to do without a capital increase, judges HSBC.

Especially since organic debt reduction, and therefore cash generation, could improve and therefore allay the concerns of investors and Moody’s, says the establishment. HSBC expects a disbursement of free cash flow of 655 million euros over the entire 2023-2024 financial year, before a return to positive free cash flow generation of 504 million euros in 2024-2025 then 702 million euros in 2025-2026.

The former Safran tandem at the center of the game

To do this, Alstom will have to demonstrate discipline on its working capital requirements and its inventories, and will be able to count on its financial director, Bernard Delpit, who arrived last year for this purpose.

Formerly financial director of Safran, the manager has a “robust balance sheet”, argues HSBC. He will also benefit from the support of Philippe Petitcolin, the former general manager of Safran, who with Bernard Delpit formed a tandem appreciated by investors in the aeronautical equipment manufacturer.

Unless there is an unlikely vote to the contrary at the general meeting, Philippe Petitcolin will take the presidency of the Alstom board of directors next July, while Henri Poupart-Lafarge will remain general director. The arrival of Philippe Petitcolin should therefore “help restore investor confidence in the company”, judges HSBC.

In conclusion, with catalysts including announcements on asset sales and orders, “we expect the stock to rise significantly during the year,” repeats HSBC.