(News Bulletin 247) – The shares of the railway equipment manufacturer are rising following the publication of the annual results and the group’s announcements on its debt reduction. The absence of unpleasant surprises may encourage investors who were betting on a fall in the stock to unwind their positions.

Alstom’s publication was awaited with some nervousness by the market this Wednesday. The rather chaotic reaction of the railway equipment manufacturer to its various announcements illustrates this well.

After opening down 6%, the stock turned around to gain more than 9% a few minutes later. Around 12 p.m., the stock seemed to stabilize around a 3% increase.

Alstom delivered its results for the 2023-2024 financial year, ending at the end of March, announced its outlook for the following financial year, and above all revealed the details of its debt reduction plan.

In terms of accounts, the group managed to generate a free cash flow of 562 million euros in the second half, thanks in particular to better control of stocks and cash. This allowed it to reduce its cash consumption to 557 million euros over the entire financial year, the group having burned more than 1.1 billion euros in the first half. Analysts expected a more pronounced cash disbursement over the entire financial year, of 632 million euros.

At 997 million euros, adjusted operating profit slightly exceeded expectations (the consensus was at 988 million euros).

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A confirmed credit score

On the debt side, Alstom has indicated that it wants to free up 700 million euros via asset sales already completed or already underway, such as the sale of certain signaling activities in North America. The financial director, Bernard Delpit, however indicated to analysts that Alstom did not rule out selling other assets, in addition to the disposals contained in this debt reduction plan.

The group also plans to raise 750 million euros through the issuance of hybrid debt, a financial instrument halfway between shares and bonds, with a higher cost than a traditional bond loan (6.5% to 7 % compared to 4.5% for short-term debt) but a longer or even perpetual maturity. Finally, Alstom intends to release 1 billion euros via a capital increase which will be completed by the end of September.

This plan should allow Alstom to maintain its “Baa3” credit rating with the Moody’s rating agency, thereby freeing up 2.4 billion euros with an impact of 2 billion on debt reduction (this is due to the fact that Moody’s only half considers the hybrid bond as capital). The agency also confirmed this credit rating in a press release this Wednesday and specified that it would “stabilize” the outlook for this rating, that is to say that it would raise it from “negative” to ” stable”, when the group has completed its capital increase and its hybrid debt issue.

Which is of crucial importance for Alstom. “the rating (the credit rating, Editor’s note) is key in general,” CEO Henri Poupart-Lafarge explained to journalists. This is both to obtain lower financing costs on the market but also to have more “availability of guarantees”, these guarantees being required by partners as part of commercial contracts.

“No bad surprises”

In the end, “there are no bad surprises”, summarizes a financial intermediary who judges that “the market perhaps has the feeling that the worst is over”.

Deutsche Bank writes for its part that it is a “clearing event”, that is to say an event which allows things to be put back to normal and therefore to then move forward. The bank writes that “both the outlook and the debt reduction plan appear in line with market expectations.” She expects “the short squeeze (of “shorts” unwinding their positions, Editor’s note) to continue”.

“Shorts” are investors who had decided to bet on a fall in the stock by selling it short (i.e. by selling the stock without holding it but by borrowing it via a dedicated market) and who may decide, following this publication, to close their position, judging that the bad news is over. Which can contribute to the rise in the stock.

“We expect a neutral reaction in the share price following this Wednesday’s announcements because the balance sheet strengthening measures are generally in line with expectations,” said Morgan Stanley, in a note published before the opening of the walk.

The management may also have reassured with its fairly dense presentation. Bernard Delpit, the financial director, notably outlined the actions undertaken and the progress made to improve Alstom’s control over its cash.

Inventories as well as project delays have been significantly reduced. In October, the group also set up a “cash cockpit” which acts as a link between the operational and financial teams. A forecast of cash needs over three months updated each month is also now carried out by the group’s regions to avoid overstocks, indicated the financial director.

Cash generation remains the financial parameter most closely monitored by the market. Alstom plans to generate between 300 million and 500 million euros in cash flow for the 2024-2025 financial year, ending next March. In the first half alone, the group will burn between 300 million and 500 million euros, he warned.